iv*s;- 



m ^ ^= 






'*\yi>. 








■5 



^ 



By FRANCIS A. WALKER 

Late President Massachusetts Institute of Technology 



PUBLISHED BY HENRY HOLT df CO., NEW YORK 
DISCUSSIONS IN ECONOMICS AND STATISTICS 



vols, 8vo. 



8vo. 



5.00 net. 



?.oo net. 



Edited by Prof. D. R. Dewey. 

DISCUSSIONS IN EDUCATION 

Edited by James Phinney Munroe. 

INTERNATIONAL BIMETALLISM 

i2mo. $1.25. 

THE WAGES QUESTION 

A Treatise on Wages and the Wages Class, izmo. $2.00. 

MONEY 

i2mo. $2.00. 

MONEY IN ITS RELATIONS TO TRADE AND INDUSTRY 

i2mo. $1.25. 

POLITICAL ECONOMY 

Advanced Course. $2.00 net, 

POLITICAL ECONOMY 

Briefer Course. $1.20 net, 

POLITICAL ECONOMY 

First Lessons. $t.oo net. 



PUBLISHED BY LITTLE, BROWN b" CO., BOSTON 

LAND AND ITS RENT 

i8mo. 75 cents. 



PUBLISHED BY CHARLES SCRIBNER'S SONS 
NEW YORK 

HISTORY OF THE SECOND ARMY CORPS, 

in the Army of the Potomac Bvo. $2.00. 

THE MAKING OF THE NATION 

i2mo. $1.25 net. 



PUBLISHED BY D. APPLETON &> CO., NEW YORK 
GENERAL HANCOCK 



|)i.50. 



AMEBICAN SCIENCE SERIES— ELEMENTARY COURSE 



FIRST LESSOJ^S 



IN 



POLITICAL ECONOMY 



^ BY 



ERANCIS A^ WALKER, Ph.D., LL.D 

fRESiDBST Massachusetts Instii^ute. @p TECHKCLOOf ,'", ; \^ 
Author op "The WAofcs Question, ' ''MoNirar,'* ^ ^ - 

"Land and its Rent," bto. „ , 




NEW YORK 

HENRY HOLT AND COMPANY 

1893 









• • ■• B '^ 



\-- 



• ' Copyright, 1889, 

BY 

KENRY HOLT & Ca 



PBEFAGB. 



This book has been prepared for use in Higb Schools and 

Academies. In writing its pages, I have been well aware 
that the object sought is the most difideult at which an 
economist can aim. Whether this effort to reach the 
minds of pupils of fifteen, sixteen or seventeen years has 
been successful, will only be learned on actual trial. 

In preparing a text-book for students in the period of 
life indicated, I have not thought it necessary to make the 
work childish. It is no ^'Primer of Political Economy'' 
which is here offered ; but a substantial course of study in 
this vitally important subject. I can only hope that it 
will be found that those for whom it has been designed 
will be able to follow that course to their own satisfaction 
and with good results. 

In adapting the tone of discussion to younger readers 
than those for whom I have heretofore written, it has not 
seemed to me desirable to avoid words as long as are 
necessary fully to carry the meaning intended. In a trea- 
tise on political economy written in " words of two sylla- 
bles,'' the author must avoid questions of prime impor- 
tance, or else he will be driven to roundabout forms of ex- 
pression and to highly artificial phrases. It is not the 
length of words, but obscurity or confusion in the mind 
of the writer, which will make a treatise on political economy 
difficult to youthful readers. 



IV PREFACE. 

What has been attempted in the preparation of this little 
work is a clear arrangement of topics ; a simple, direct 
and forcible presentation of the questions successively 
raised ; the avoidance, as far as possible, of certain meta- 
physical distinctions which the author has found very per- 
plexing to students of even a greater age ; a frequent repe- 
tition of cardinal doctrines ; and, especially, a liberal use of 
concrete illustrations, drawn from facts of common experi- 
ence or observation. How far this attempt has been suc- 
cessful is now to be submitted to the judgment of others, 
and to the tests of the school-room. 

Tor one, I am fully persuaded that it is as easy to teach 
political economy to students of fifteen, sixteen or seven- 
teen years of age, as it is to teach geometry or quadratic 
equations, which are actually taught, and with complete 
success, within that period of life. But this can only be 
done by the master taking as much pains with his classes 
as he would take in teaching the latter subjects. There is 
not one scholar in five, perhaps in ten, who would go satis- 
factorily through geometry or quadratic equations by 
himself, using simply the text-book. The great majority 
of pupils require the active assistance of the teacher, at 
every stage of their progress. The master must continu- 
ally search the minds of his pupils to see what they have 
apprehended, and what they have failed to apprehend. 
He must go back to fundamental principles just as often 
as he finds it necessary in order to fix these firmly in the 
mind. He must do more, much more, than hear recitations : 
he must positively and actively teach, if his scholars are 
to learn. He must illustrate, emphasize and enforce every 
successive lesson. 

If political economy is to be taken up in such a spirit, 
in schools of the grade to which reference has been made, 
it can be successfully taught out of such a book as this was 



intended to be. Take, for example, the principle set forth 
in Chapter X, and made of such extensive use in later 
chapters : the principle that normal value is determined by 
the cost of production "at the greatest disadvantage/' One 
who has mastered this has already learned the harder half 
of political economy. Yet there is nothing in it which can- 
not be made perfectly clear, by proper explanation, due 
iteration, free illustration, to the mind of a boy of sixteen, 
or, for that matter, of fourteen. A class might, however, 
get through that chapter, for the purposes of a routine reci- 
tation, under a master who was not himself interested in 
the subject, without thoroughly grasping the principle and 
giving it such a place in their minds as would enable them 
to use it in subsequent discussions regarding the distribu- 
tion of wealth. 

Another thing requires to be noted regarding the plan 
of the present work. Inasmuch as it is intended for youth- 
ful students, and is designed quite as much to interest 
them in the study of political economy as to make them 
proficient in it, the author has not held himself, as strictly 
as he has sought in previous works to do, to the treatment 
of political economy as a science, to be distinguished from 
the art of political economy. He has allowed himself great 
freedom in assuming that certain results are desirable in 
themselves, and certain other results undesirable : and he 
has sought to show how these may be avoided and those 
attained. Much, which, in his other works, has been 
treated as belonging to the Applications of political econo- 
my, is wrought into the substance of the present treatise. 

It scarcely requires to be said that any one who should 
undertake to teach political economy, with the aid of this 
or lany other work of an elementary character, should pre- 
pare himself for the task by studying more advanced text- 
books. In this connection the present writer would recom- 



mend John Stuart Mill*s Political Economy, and Marshaling 
brief but excellent Economics of Industry. He trusts he 
will not be deemed egotistical if he mentions his own fuller 
treatise on political economy, and, also, his Wages Question. 

The teacher would be greatly assisted in preparing him- 
self, both generally and for individual recitations, by using 
Problems in Political Economy, by Prof. W. Gr. Sumner of 
Yale University; Institutes of Economics, by President E. 
B. Andrews of Brown University; and Outline of Lectures 
upon Political Economy, by Prof. Henry 0. Adams of the 
University of Michigan. 

The habitual reading of the Quarterly Journal of Econo- 
mics (Harvard University) is strongly recommended. The 
publications of the American Economic Association will be 
found highly useful. 

"While the chapters of this work are intended to be 
studied in the order in which they appear, some teachers 
may find it better to omit paragraphs 106 to 146, inclusive, 
on first passing through the book, reserving those sections 
for subsequent study. 

Massachusetts Institute of Tecknologt, 
Boston, October 14» 1880. 



TABLE OF CONTENTS. 



PART I. 



PR OB TJGTION AND EXCHANGE. 

CHAPTER PAOB 

I. Wealth and Yalue, 3 

II. The Cause op Value, 13 

III. The Production op Wealth, 17 

IV. Land, 32 

V. Diminishing Returns in Agriculture, .... 35 

VI. Labor, 34 

VII. Labor, Continued. The Organization op In- 
dustry, 50 

VIII. Capital, 60 

IX. The Relation op Cost op Production to Value, 72 

X. Production at the Greatest Disadvantage, . . 85 

XI. Money, 95 

XII. Primitive Forms op Money, 103 

XIII. Credit : The Standard of Deferred Payments : 

The Tabular Standard : Bimetallism, . . .109 

XIV. Banks and Bank-money, 122 

XV. Political Money : Inflation, . 143 

XVI. Protection or Free Trade, 164 



PART II. 

DISTRIBUTION AND CONSUMPTION. 

XVII. The Problem op Distribution, 181 

XVIII. Rent 189 

XIX. Rent, Continued. The Ownership op Land, . . 205 

Tii 



viii TABLE OF C0M'm!t8. 

CHAPTER PAGfi: 

XX. Profits, 315 

XXI. Profits, Continued. Co-operation, 225 

XXII. Interest, 237 

XXIII. Wages, 251 

XXIV. The Economic Effects of Imperfect Competi- 

tion 261 

XXV. What May be Done to Help the Working 

Classes, 272 

XXVI. The Pauper Labor Argument for Protection, . 283 

XXVII. The Consumption of Wealth, 291 

XXVIII. False Notions about Consumption, 301 



PART I. 

PBODTTGTION AND EXCHANGE. 



POLITICAL ECONOMY. 



CHAPTER I. 
WEALTH AND VALUE. 

1. Political Economy is the Science of Wealth.— Politick 
economy, or economics, is the science of wealth. 

Political economy has to do with nothing hut wealth. 
This warning should he carefully heeded. A great part of 
the confusion which has existed on this subject has arisen 
from the fact that many writers on political economy have 
allowed their attention to he diverted, here or there, now 
or then, to some other social object besides wealth, and 
have perplexed themselves and misled their readers by dis- 
cussing questions which do not belong to them, as political 
economists. 

When we say that the political economist, as such, has 
to do with nothing else besides wealth, we are not saying 
that wealth is the most important matter in the world. We 
simply say that, if wealth is important enough to be inves- 
tigated, it should be investigated by itself. The best and 
surest way by which to increase our knowledge of any sub- 
ject, is to isolate it and study it long and carefully, by itself, 
from all sides. This is just as true of a social problem as 
of a chemical problem. The great difference between the 
two cases is that in the social problem it is not possible to 

8 



4 POLITICAL ECONOMY, 

keep out all foreign elements. Hence we can never expect 
to reach the same degree of assurance in political economy 
as in chemistry. But that constitutes no reason at all for 
not excluding foreign elements so far as we can, and keep- 
ing the thing we are studying, namely, wealth, as closely 
in view, all the time, as the nature of the case will permit. 

2. Relation of Value to Wealth. — I have said that politi- 
cal economy is the science of wealth. But what is wealth ? 
I answer. Wealth comprises all articles of value and nothing 
else. Everything which has value is wealth. Nothing is 
wealth which has not value. In the language of the phi- 
losophers: Wealth is the substance , of which value is the 
attribute : that is, we always and everywhere attribute 
value to the substance, wealth. 

If wealth and value are thus indissolubly joined together, 
the reader may ask. Why, when, should we not call political 
economy the science of values ? I answer. It would be per- 
fectly proper to do so. Some writers have done so. One 
reason, however, for calling political economy the science 
of wealth, is that many persons who would not be in the 
least interested on being asked to listen to a lecture, or read 
a book, on the science of values, would be very much inter- 
ested on being told that the subject was the science of 
wealth. Wealth is a word which appeals to all, poor or 
rich, low or high, ignorant or educated. No one is above, 
no one is below, an interest in this subject. It is, therefore, 
a good term to use in describing political economy. 

3. Value Defined. — But what is value ? This is a ques- 
tion which needs to be carefully answered; and the reader 
should always keep the definition clearly in view. It will 
not do to think loosely about value. 

In common speech we use the word in more than one 
sense. Thus, we might say that the value of a horse is one 
hundred dollars^ or that a certain book contains some valu- 



POLITICAL ECONOMY, 6 

able truths. In political economy, however, the word should 
always mean precisely one thing, and nothing else. 

The definition which I have to give is a long one, and I 
must ask the reader to commit it carefully to memory. 
There are few things which it is worth while to commit to 
memory, word for word; but this is one of them: 

Value is the power which ak article coi^fers 
UPON- ITS possessor, irrespective of legal authority 
OR person^al sektimen^ts, of commanding, in ex- 
change FOR ITSELF, THE LABOR, OR THE PRODUCTS OF 
THE LABOR, OF OTHERS. 

It is proper, speaking briefly, to say that value is Power 
in Exchange; but whenever we say this, we must have in 
mind all that is stated above. 

4. Two Exceptions.— What do we mean by saying, "ir- 
respective of legal authority or personal sentiments'"? This 
will be best shown by illustrations, as follows: 

The Emperor of Eussia or of Germany can, by a few 
words, compel two millions of men to come from all parts 
of his empire, to serve in his army He can command them 
to make the greatest exertions, to submit to the most pain- 
ful sacrifices, involving hunger and fatigue, and even 
wounds and death. At his will, they must march, watch, 
fight, or die. Political economy has nothing to do with 
this, because it is done by legal authority. This is not a 
case where value exists. These services are not economic. 

On the other hand, the soldiers of England and the 
United States perform services which are economic. They 
are not compelled to enter the army. The government 
makes it worth their while to do so„ It "goes into the 
market for labor,'' and hires men to leave their homes or 
their farms or their shops, and serve for one year, or three 
years, or five years, in the army. What they are to do there 
is not the question for us to consider here. So long as the 



6 POLITICAL ECONOMY, 

government hires them, with clothes and food and money, 
and so long as they, on their part, freely accept these terms, 
we have a case of value, just as much as if they were hired 
to work upon harbor-improvements or in building roads. I 
do not say that it is just as well for the country to hire men 
to fight as it would be to hire them to build roads. I only 
say that, in each case, there is value. The clothing, food, 
and money of the government confer upon it the power to 
command, in a fair and free exchange, the labor of the 
workmen, or of the soldiers. The labor of the workmen, 
or of the soldiers, confers upon them the power of com- 
manding, in a fair and free exchange, the clothing, food, 
and money of the government. 

So much for ^' legal authority. ■*' How about '^personal 
sentiments" ? Again, let us proceed by illustrations. A 
mother gives her thoughts, her care, her labor, her time, 
her strength, day by day, without grudging and without 
reserve, to the rearing of her childern ; while, in their sick- 
ness, she drains her very life-blood to protect and save 
them. But this is not a case of value. Political economy 
has nothing to do with it. The mother renders these serv- 
ices to these children, because they are hers. She does it out 
of affection for them, and not for reward. On the other 
hand, the services of a hired nurse or of a paid physician 
are economic : they constitute a case of value. 

5. Value Not a Physical Property. — The reader now sees 
why I said, " irrespective of legal authority and of personal 
sentiments." Leaving out these words, for the moment, 
let us see how our definition of value will read: Value is the 
power which an article confers upon its possessor of com- 
manding, in exchange for itself, the labor, or the products 
of the labor, of others. 

Value is not any material or physical property of an 
article. In any given place, at any given time, any 



POLITICAL ECONOMY, 7 

given article may depend for its value upon certain 
physical^ or material properties in itself; but these prop- 
erties are not the value. Softness is not value; hard- 
ness is not value. Some articles are more valuable, the 
softer they are; some are more valuable, the harder they 
are. Color is not value; absence of color is not value. 
Some articles are more valuable, the more highly they are 
colored; others become more valuable, the more perfectly 
free they are from every tinge of color. Tenacity 
is not value; ductility is not value. Some articles are 
more valuable, the greater their tenacity ; others have 
value in proportion to the ease with which they can be 
drawn out. Sweetness is not value, acidity is not value. 
Honey is valuable in proportion to its sweetness, vinegar to 
its sourness. We see, then, that value is not any material 
or physical property of an article. 

6. Transferability Essential to Value. — We have seen that 
value is power in ezchange. Now, to an exchange, as to a 
quarrel, there must be two parties. An exchange requires 
at least two exchangers. Value, then, is a social phenome- 
non. 

Again, in order that there shall be an exchange, there 
must not only be two exchangers, but the article to be ex- 
changed must be such that it can be detached from one 
and made over to the other. That is, transferability is es- 
sential to value. 

This point is of much importance, since it at once settles 
the relation to political economy of certain properties and 
qualities, which many persons have written about as if 
these were wealth, namely, health, intelligence, strength, 
skill, even personal honesty. If, however, we apply the test 
of our definition, we find that these properties or qualities are 
not wealth, since they have not value. They have not value, 
because they cannot be exchanged. A man cannot detach 



8 • POLITICAL ECONOMY. 

health, strength, skill, or intelligeuce from himself, and make 
them over to another person. They can, indeed, be taken 
away from the present owner, as by death or sickness; but 
they do not, in that case, become the property of another. 
The gouty millionaire cannot, with all that he has, pur- 
chase the robust health of the laborer by the wayside, or 
buy for his own empty-headed son the learning or the 
trained faculties of the humblest scholar. 

7. The Use of Personal dualities May be Sold. — But while 
these properties and qualities cannot be detached and trans- 
ferred, and thus cannot be said to be wealth, the present 
use of them can be made over to another, and hence may 
become the subject of exchange. The rich invalid may 
command the services of the robust laborer in waiting on 
his person; he may hire the poor scholar to be tutor to his 
son. The use, therefore, of such personal qualities and 
endowments properly constitutes an item of wealth. By 
the force of contract, the possessor may even transfer the 
use of them for a definite period in the future, as when a 
man is hired by the week, the month or the year. Such 
a sale, however, of personal qualities or endowments is al- 
ways a ''contingent^' one. It is always subject to the 
chance of death or sickness. 

8. Better than Wealth, but Not Wealth. — If we ask why 
it is that so many excellent writers in political economy 
have insisted upon regarding health, strength, intelligence 
and skill as being wealth, we shall find that it is because 
these things seemed so good and desirable. But the fact, 
for example, that health is better than most forms of wealth, 
or that health may be the means of acquiring wealth, 
does not make it wealth. There are many things which 
are better than wealth, but are not wealth. ''A good 
name," says Solomon, ''is rather to be chosen than riches, 
and loving favor than silver or gold;'' yet a good name is not 



POLITICAL ECONOMY, 9 

riches, and loving favor is neither silver nor gold. And, 
at this point, we iind that the popular use of the teim co- 
incides with the definition given it for scientific purposes. 
Plain men do not speak of such qualities or endowments as 
being wealth. No merchant or manufacturer or laboring 
man would include any one of these items in an account of 
his wealth, however precious he might esteem them. 

9. The Desire of Wealth. — We have defined wealth. It 
will be seen that by this term is not meant great wealth; 
that the idea of luxury, or softness of living, is not neces- 
sarily implied in it. In common phrase, when we speak of 
a man as wealthy, we mean that he has great wealth, that 
he can, if he pleases, live richly. But the wealth of which 
the political economist speaks embraces the frugal fare and 
the small savings of the poor laborer, just as much as it 
does the sumptuous living and the vast accumulations of 
the millionaire. 

It will be seen from the foregoing that the desire for 
wealth which leads men to labor and to exchange the prod- 
ucts of their labor is not, in all cases, or in most cases, 
the same as that ^'^love of wealth'^ which preachers or 
moral philosophers are wont to condemn. The desire of 
wealth, on the part of a poor laborer, means no more than 
his wish to provide decent and comfortable subsistence for 
those dependent upon him, and to save them from suffer- 
ing, squalor and filth. On the part of one who is more 
fortunate, the desire of wealth may mean the wish to have 
his family respectably housed and decently clothed; the 
children well educated for the duties of life, and a fair pro- 
vision made against sickness and old age. This is all 
which the desire of wealth means, in the case of nearly all 
human beings. On the part even of those more fortunate 
still, the desire of wealth may mean, not so much the taste 
for rich food, sumptuous apparel, gay equipage and social 



10 POLITICAL ECONOMY. 

display, as an ambition to undertake great works, for 
which large resources are necessary; a wish to be esteemed 
strong, sagacious and masterful; or even the purpose, alto- 
gether benevolent, to use wealth in charity or for the pro- 
motion of learning, art and religion. 

It will appear what a varied matter is the love of, or the 
desire for, wealth, alike in its origin and in its ulterior 
objects. It is probably because people have commonly 
thought of the desire for wealth as the greed of gain, as 
the passion for display, as the craving for luxury, as the 
miser's thirst for gold, or as the strong man's love of power 
and mastery, that political economy has so often borne a 
bad name. We have shown, above, how partial and how 
false such a conception is. 

10. Political Economy does not Inculcate Love of Wealth. 
— Even where the desire of wealth becomes a strong appe- 
tite or a raging passion, political economy is not to be 
charged with any part of this. The political economist 
has not implanted a love of wealth in the human mind; 
nor, finding it there, does he seek to blow it into a flame. 
He simply takes it as he finds it ; and, regarding it as a 
social force, he proceeds to inquire how this passion, or 
propensity, as it exists among men, influences their actions 
in respect to the production, the exchange, the distribu- 
tion, the consumption, of that which we call wealth. His 
business is that of the professor of a science, viz., to trace 
effects back to their causes, to project causes forward to 
their effects, within the domain of wealth. Hence, we see 
how unjust is the sneer at political economy, when it is 
spoken of as the '^''gospel of mammon. '^ 

11. Political Economy Chastens Greed. — Not only has 
political economy not implanted a desire for wealth in the 
human mind ; not only does it not inculcate greed of gain ; 
but it would be easy to show that the study of political 



POLITICAL ECONOMY, H 

economy has done mucli, perhaps more than any or all 
other causes, to repress yiolence, fraud and rapine, as 
means towards the attainment of wealth. By showing how 
wealth is really best gained and kept, it has tended to banish 
a ravenous, ferocious greed, which seeks to snatch its ob- 
jects by brutal force, with whatever injury to others ; and 
has replaced this by an enlightened sense of self-interest, 
which seeks its ends through services and exchanges mutu- 
ally beneficial, and which supports social order and national 
peace, as the conditions of general well-being. 

Before Adam Smith published his great work, the 
'* Wealth of Nations,'' in 1776, it was a maxim of public 
policy that only one party to a trade could profit by it : 
that all which one might gain the other must lose. Out 
of this root grew wars and commercial restrictions, which 
set man against man and nation against nation, making 
intercourse between e\ren the most highly civilized states a 
game of deceit and violence. Adam Smith, by his masterly 
exposition of the mutual benefits to be derived from ex- 
change, left the love of wealth in the human mind, not 
rebuked but enlightened. Men might still seek wealth 
as earnestly and ardently as ever, but no longer by the 
old, bad, brutal, heathen methods. Little more than a 
hundred years have elapsed since the appearance of the 
" Wealth of Nations''; yet mankind have, within that time, 
made greater progress toward humane and mutually bene- 
ficial relations between states and nations, than during all 
other centuries of human history. 



CHAPTER 11. 
THE CAUSE OF VALUE. 

12. TTtility Esseniial to Value. — We have defined value 
as, briefly speaking, power in exchange. We are now to 
inquire whence comes that power ? Why is it that one 
article has value and another has not ? Why is it that one 
article has great value, while another, perhaps more beau- 
tiful, perhaps more useful, has little value ? These are 
questions we shall now try to answer. 

We may certainly begin by assuming that no one will 
give for any article his labor or the product of his labor, 
unless he has a use for that article, or unless he is buying 
it for someone who has a use for it. Hence we say that 
usefulness, or utility, is an essential element of value. We 
need make no exception to the statement, that, wherever 
value is, there is utility. 

But we must explain just what we mean by utility, or 
usefulness. That word, as we use it here, signifies no 
more than that an article meets a felt human want : that 
men have a use for it. But this is not the sense which the 
word always has. By it is sometimes meant that an ar- 
ticle is beneficial : that it does good to the person who 
owns or consumes it, in making him stronger, wiser, hap- 
pier or better ; or, else, that it does good to the community. 
Now this would not answer, in the present case. An article 
may have utility, in the sense that men have a use for it, 
in the sense that it satisfies a want which men feel, and 
yet be liarmful, perhaps in a high degree. Intoxicating 

12 



POLITICAL ECONOMY, 13 

drinks are, to most persons who buy them, very injurious : 
yet, so long as men will give for them their labor or the 
products of their labor, intoxicating drinks possess utility, 
in the economic sense. Many articles which are always 
used, or which are often used, in such a way as to injure 
the mind, or body, or both, are useful in this sense. 

13. Value not Proportioned to Utility.— We have said 
that there is always utility where there is value. Is it, 
also, always true that there is value wherever there is 
utility ? We answer, no. There cannot be value without 
utility, but there may be utility without value. ]N"othing 
is more useful than atmospheric air : there is nothing for 
which men have a more constant use, nothing of which 
they have a more intense need. Yet atmospheric air has, 
as a general thing, no value at all. Every man, even the 
poorest and meanest, takes of it what he will, without giv- 
ing anything in exchange. Water, too, has a high degree 
of utility. Although men have a use for it in widely vary- 
ing degrees, some water, more or less, every human being 
craves, with an eagerness which would soon result in 
delirium and death, were it denied. Yet water is generally 
to be had without giving anything in exchange for it. 
Men help themselves to what they want of it. 

Not only is it true that there are some articles which 
have great utility and no value at all : but among articles 
which have both utility and value, the value is not always 
in proportion to the utility. Of two articles, both of which 
are very useful, both of which men desire and earnestly 
crave, either of which it would be pain to be deprived of, 
one may have a high value and the other a low value. 

14. Difficulty of Attainment, the Second Element of 
Value.— We conclude, then, that there is another element 
of value. And, on reflection, we find that element to be 
difficulty of attainment, or, as it is sometimes called, scar- 



14 POLITICAL ECONOMY. 

city* If we apply these two tests,, utility and difficulty of 
attainment^ we shall be able to explain every case of value 
which we meet^ or of which we can conceive. We are 
sure, therefore, that our analysis is correct. 

The reason why men do not, in general, give their labor, 
or the products of their labor, in exchange for atmospheric 
air or water, is not that these substances are not useful to 
them; but that there is, usually, no difficulty in obtaining 
as much of either as anyone can require. The moment 
there comes to be any difficulty in obtaining a sufficient 
amount of atmospheric air, that substance may fairly be- 
come the subject of exchange: that is, may acquire value. 
Air may be delivered to divers under the sea, through pipes 
or rubber tubes, at a fixed price per cubic foot. A great 
amount of labor and capital is often employed in supplying 
atmospheric air to miners under ground, where it is paid 
for at a high price. While one can always have in his house, 
for nothing, as much bad air as his family can breathe, 
pure air in a dwelling is often very costly. It is, indeed, 
one of the most expensive of all luxuries: so expensive that 
many persons who devote large sums to display and fashion 
do not feel themselves rich enough to have their own houses, 
and the churches, schools, concert halls and theatres which 
they or their children attend, decently well ventilated. 

In general, as we said, water has no value. Indeed, a 
great deal is sometimes paid for merely getting rid of it: 
for pumping it out from cellars and mines and low lands, 
or for building dikes or levees against it, along the banks 
of rivers or upon the sea-shore. On the other hand, when, 
in desert countries or in great cities, water becomes difficult 
of attainment, in the quantities desired and in the right 
times and places, it comes to command a price, perhaps a 
high price. 

Again, iron, although distinctly th-e most useful of all the 



POLITICAL ECONOMY, 15 

metals, in the extent and variety of its applications, has a 
much lower value than many others, simply because the 
difficulty of attainment is, in its case, less. The price 
which a man pays for a knife, for instance, does not measure 
the usefulness of the knife to him, but only the difficulty 
of attainment. He pays, in fact, fifty cents for the knife: 
but he would sooner pay $5, or 110, or even $50, than not 
have a knife. 

15. Demand and Supply. — We have thus far spoken of 
the two elements of value, viz., utility and difficulty of 
attainment; but when we come to investigate the ratios of 
exchange, and to talk of buying and selling in the market, 
it will help us very much to substitute for these terms two 
others, viz.. Demand and Supply. 

The fact that an article is useful gives rise to the demand 
for it. The difficulty of attainment ^ in the case of any ar- 
ticle, governs the supply of it. Tlie value of an article de- 
pends upon the demayid for it and the supply of it. A large 
demand does not necessarily mean a high price, since the 
supply may be practically unlimited. A small supply does 
not necessarily mean a high value, since the demand may, 
also, be small. But in the case of any article which is de- 
sired by men, and which can only be obtained through the 
exertions and sacrifices of economic agents, value is, at any 
time, fixed by the relation between supply and demand. 
Other things equal, if demand increases, or supply decreases, 
value will rise. On the other hand, if demand decreases or 
supply increases, value luill falL Inasmuch as the demand 
for any article and the supply of it are subject to frequent 
changes, sometimes great and sometimes small, sometimes 
one way, sometimes the other, it is not to be expected that 
its value will long remain the same. But this liability to 
change of value is very different in the case of different 
articles. Some move as rapidly and frequently as a weather- 



16 POLITICAL ECONOMY. 

vane; others have a certain degree of stability. But it is 
always to be borne in mind that, whenever any change of 
value takes place, it must be due to a change in demand, or in 
supply, or in the two unequally. We say unequally, since, 
if the change in demand were just equal to the change in 
supply, value would remain unaffected. 



CHAPTER III. 
THE PRODUCTIOK OF WEALTH. 

16. Production Defined, — The term, production of wealth, 
embraces all those acts and courses by which it comes about 
(1) that an article which before had no value acquires value, 
or (2) that an article which before had a certain value now 
bears a higher value. The production of wealth is not the 
creation of matter, but the creation of value. 

The word, production, is derived from two Latin words 
which mean drawing forth or bringing forward. The term 
is very significant as applied to wealth. Much of the pro- 
duction of wealth which takes place, as we shall see, con- 
sists merely in drawing things out from where they have no 
value and in bringing them forward for human use. 

17. Three Kinds of Value. — A German economist (Prol 
Knies) has said that the production of wealth embraces the 
creation of three kinds of value, time-value, place-value, 
and form-value. The distinction is not one which we shall 
need to carry through our study of political economy; but 
it is interesting at this point, as affording good illustrations 
of what is meant by the creation of values. 

18. Time-value. — Time-value is created in the case of 
ice, when it is produced, kept along, carried over, from the 
winter, when nobody wants it, and when it is, perhaps, an 
obstruction and a nuisance, into the summer, when many 
people want it, and want it very much. Keeping the ice 
over from winter to summer, producing, extending it, with 
all which that requires of labor or of care, is the creation 

17 



18 POLITICAL ECONOMY. 

of value: is, therefore, the production of wealth. Wine 
and many other articles of human use may acquire greatly 
increased value with age. 

19. Place-value. — This species of value is created when- 
ever an article is safely transported from a point where it 
has no value to a point where it has value, or from a point 
where it has a certain value to a point where it has a greater 
value. Most of the values created by commerce are of this 
kind. Many commodities have two or three times the value 
in the markets of New York or London which they have 
in the regions from which they were brought. Timber 
which is worth eight or ten dollars a thousand feet in Georgia 
or Canada, will bring, without change of form, twenty-five 
dollars in Boston. 

The addition to the value of articles due to transportation 
varies very widely. It is, of course, greatest in the case of 
bulky articles, like lumber and coal, and of perishable ar- 
ticles, like summer fruits. Some articles will, as the saying 
is, '^bear transportation;" that is, their heightened value 
will repay the cost of transportation, for thousands of miles; 
other articles are not worth, in any market, as much as 
would be required to transport them a hundred miles, even 
by the easiest route. Of course, a great difference is made 
in the cost of transportation, according as the carriage is by 
water or by land ; * according as it is done by carts and 
wagons, or by trains of cars; or, again, if it be by carts or 
wagons, according as it is over smooth and level roads, or 
over rough and steep mountain paths. It is an old saying 
that ^' resistance is distance;" and it is true that two places 
separated by a thousand miles of navigable water may be 

* In Ms speecli on the tariff, in 1824, Daniel Webster estimated the 
cost of bringing iron from Sweden, by water, to Philadelphia, to be 
no greater than the cost of carrying it from that port fifty miles into 
the interior. 



POLITICAL ECONOMY. 19 

nearer, economically speaking, than two places divided 
merely by the spur of a mountain chain. 

20. Form-value. — The third kind of value which has 
been spoken of, namely, form-value, is that which is most 
important of all. By far the greater part of the operations 
which we call industry, are for the purpose of creating this 
species of value. Creating value, as we said before, not cre- 
ating matter, since, generally speaking, the matter involved 
grows less as the value grows greater. A block of marble, 
which may be worth twenty dollars, comes under the hands 
of a sculptor. His whole work consists of chipping-off por- 
tions of the marble, which are thrown away. When the 
sculptor has finished his task, there is only one-half or one- 
third as much marble as at the beginning ; but the statue 
is worth a hundred, a thousand, or ten thousand dollars, ac- 
cording to the skill and taste of the sculptor. Cotton has a 
certain value in the storehouse of the planter, along the Red 
Eiver or the Yazoo. After the cotton has been ginned, 
i.e. cleaned by machinery, there is less of it : less, not 
only by the amount of seed and impurities removed, but 
less of actual cotton, since the ginning process involves 
some waste. Notwithstanding this, the cotton is worth 
more, although there is less of it. When the cotton is 
taken to the mill, and picked and carded and rolled and 
spun and woven, there is, at each stage of the manufac- 
ture, a loss of material, greater or smaller. Yet, in each 
case, what is left is worth more than the whole was, until 
we come to the point where the pound of cotton, which was 
worth eight cents in the planter^s hands, is worth fifteen, 
or twenty-five, or fifty cents, in dress goods, in thread or 
in lace. When iron ore is made into pig-iron, there is a 
great loss of iron ; when pig-iron is made into wrought-iron, 
there is a further loss ; when wrought-iron is worked up 
into building or carriage hardware, the quantity is still 



20 POLITICAL ECONOMY. 

more diminished ; but at each stage there is an increase of 
value. 

21. Wealth and Value, Again. — Always and everywhere, 
the production of wealth means the creation of value ; and 
always and everywhere, value is power-in-exchange. It is 
not a question whether men ought to desire the articles 
produced ; whether those articles make them better or 
wiser or healthier or happier. If, in fact, a man does de- 
sire any article sufficiently to give for it his labor or the 
product of his labor, there we have a case of value. Wher- 
ever and whenever, by whatever acts, in whatever ways, 
value is created, there and then wealth is produced. 

22. The Three Primary Agents* of Production. — The 
three primary agents in the production of wealth are land, 
labor and capital. In every creation of values, all these 
agents are engaged, although the proportions in which 
they severally contribute to the production of wealth vary 
widely. In the production of a pound of cotton, worth ten 
cents, there is a large use of land. When that cotton is 
made into fabrics worth twenty-five cents, the additional 
use of land is comparatively slight, consisting mainly of 
the occupation, for a few seconds of time, of a very small 
part of the ground on which the factory is built, and of a 
few quarts of water falling through fifteen or twenty feet 
and helping to turn the great wheel of the mill. When the 
cloth, thus made, is cut and sewn and formed into a gar- 
ment, the additional use of the land is probably smaller, 

* When the reader shall reach the close of Chapter VII., it will be 
seen that we introduce a fourth grand agent in the production of 
wealth, under modern industrial conditions, viz. business ability; 
meaning, by that, business ability (both natural and acquired) in an 
exceptional and high degree, suited to the vast cares and responsi- 
bilities of production where the division of labor has been carried to 
a wide extent. This, however, cannot properly be termed ?k 'primary 
agent of production. 



POLITICAL ECONOMY. 21 

still, for each cent's worth of value added. Even in the 
creation of time- value and place-value, a certain use of land 
is required, whether for stores and warehouses, or for roads 
and the tracks of railroads, stations, wharves, etc. 

In the same way, the proportions in which labor and 
capital contribute to the production of wealth vary widely. 
Two articles may be exchanged for each other, one of which 
has required the use of two times, five times, or ten times 
as much capital as the other. In that case, the other arti- 
cle has probably cost more, perhaps very much more, labor 



CHAPTER IV. 
LAJ^D. 

23. Land Defined. — The term, land, as used by the polit- 
ical economist, embraces all natural agents, of which use is 
made in the production of wealth. It has reference, not 
more to tilled fields than to pasture and meadow, to forest 
and mine. It embraces the water as well as the " dry land." 
Wherever a stream falling over a ledge gives the force which 
is used to drive the great wheel of the mill, there we have a 
case of the use of land, in the production of wealth. The 
fisheries of the deep sea and of the shallow bays and arms 
are closely related to such " extractive industries " as the 
cutting of timber and fuel from the forest, the raising of 
coal and metallic ores from the depths of the earth, or the 
gathering of ice from the frozen waters of fresh lakes and 
rivers. All these operations, even to the boring for petro- 
leum or natural gas, relate to the land, as the economist 
uses that word. 

24. The Quantity of this Agent of Production is Fixed. 
— The land — the aggregate of all the natural agents at the 
disposal of any community — is, unlike the capital that may 
be placed upon the land, unlike the laborers who may be 
called to work upon it — a fixed quantity. There is so much 
of it and there can be no more. It is not in the power of 
mankind to increase the breadth of the land, or to add any- 
thing to the sum of the natural agents which are subject to 
human uses. Men may, indeed, from time to time, dis- 
cover resources in nature not previously suspected ; they 



POLITICAL ECONOMY. 23 

may increase the dry surface at the expense of the water 
surface, as when a great part of Holland was redeemed 
from the ocean by dikes, built with prodigious labor ; as 
when lakes and swamps are tapped and drained, to become 
the fields of a flourishing agriculture. Again, whereas one 
generation only scratched the surface, to raise a scanty and 
precarious crop, succeeding generations may learn to plough 
and bring up the productive essences of the soil from great 
depths. Still again, by engineering skill and the invention 
of powerful machinery, shafts and galleries may be run 
through solid rock ; and substances, liquid and solid, of 
great usefulness to men, may be raised through the crust of 
the earth, to a distance of 1500 or 2000 feet. But in all 
this there is no addition to the sum of natural agents ; only 
a larger or a better use of those already existing. Sooner 
or later, later or sooner, human ingenuity and labor will 
reach the end; and it will, thereafter, only be a question of 
the wise or the unwise use of the natural agents placed at 
the disposal of mankind. 

25. All Use of Land involves a Certain Loss. — Not only 
do the productive properties and powers of the soil con- 
stitute a fund, which cannot be increased by human effort ; 
but there is involved, in all use of the land, a certain loss, 
which, so far as science enables us to foresee, is permanent 
and irretrievable. 

That loss may, for any given production of wealth, be 
very small, under prudent management ; while reckless- 
ness, greed and ignorance may turn that necessary loss into 
monstrous and hideous waste. Many of the once fairest 
lands on earth, which supported large populations in com- 
fort, are now little better than sterile deserts, owing to 
man^s abuse of nature. 

How, it will be aske(^, can this be so, if the modern 
scientific law known as ^^the conservation of energy ^^ be 



24 POLITICAL ECONOMY. 

true ? How can any force be lost out of nature ? I 
answer;, J^o force can be lost ; but force may^ by purpose or 
accident, be transmuted from forms in which it has min- 
istered to human wants, into forms in which it is useless 
to man, and even into forms which are injurious and de- 
structive. A cottage, which has long sheltered a family, 
may, through the snapping of a coal, pass-off in heat 
and smoke ; and in half an hour nothing will be left but 
a heap of ashes and blackened stones. There is just as 
much force in the world ; but there is one cottage less. 
Almost any article that nourishes the human frame maybe 
transmuted into more or less virulent poisons. The mere 
dissipation and scattering of valuable substances may 
deprive them of their usefulness. Such is the condition 
under which the human race occupies and enjoys the 
earth. 



OHAPTEE V. 
DIMINISHING KETURNS IN AGRICULTURE. 

26. The Great Law of Agricultural Production. — But^ 
aside from the progressive diminution of the productive 
powers and properties of nature, through human use, we 
find that the land, at any given time, is cultivated or en- 
joyed subject to one universal condition, which we express 
by the term, the law of diminishing returns in agriculture. 
This law- may be stated as follows : 

After a certaiit point has been" reached, in the 
cultivation of any tract or field, an increase of 
product cannot be obtained without more than a pro- 
portional application of labor, or capital, or both. 

Thus, we may suppose that a field in Hampshire, Eng- 
land, is producing 24 bushels to the acre, under an outlay, 
by the farmer, in labor and capital, which we may repre- 
sent by 24«. Now, inasmuch as this field has long been 
under cultivation in a community where labor and capital 
are abundant, and inasmuch as the farmer knows all about 
the field, what is best to do with it, how it can be made to 
yield the largest crop for the least labor, we may fairly as- 
sume that the point of diminishing returns has been 
reached. If this be so, then it will be true that the farmer 
cannot raise the crop to 27 bushels, an acre, by simply ex- 
pending 27« upon the land ; still less can he raise the crop 
to 30 bushels, an acre, by expending dOa; much less, still, 
can he raise the crop to 33 bushels by expending ^da. In- 
stead of this, he might find that 27 bushels would cost 2Sa; 



26 POLITICAL ECONOMY. 

30 bushels, 2t2a; 33 bushels, 36«. The amounts of labor 
and capital required to raise the larger crops might even 
increase more rapidly, perhaps much more rapidly. To 
raise 33 bushels to the acre might cost, not 36a, but 40^5^ 
while to raise 36 bushels might cost 50«, and to raise 39 
bushels might cost 60^. But, whether the increase in the 
amounts of labor and capital required be greater or be 
smaller, it is true that, whenever a certain point has been 
reached in the cultivation of any field, for the purposes of 
any crop, a more than proportional amount of labor, or of 
capital, or of both^ will thereafter be necessary, in order to 
increase the produce, in any degree, however slight. This 
is what we mean by the law of diminishing returns in 
agriculture. 

27. The Universality of this Condition. — The existence of 
this condition cannot be disputed. There is no acre of 
land on the face of the globe, on which 60 bushels of wheat 
can be raised with twice as much labor and capital ; 90 
bushels, with three times as much labor and capital ; and 
120 bushels, with four times as much labor and capital, as 
would be sufficient to raise 30 bushels. Every time a far- 
mer breaks up a new field, in order to increase his crop, he 
bears testimony to the existence of this law, for, if that law 
did not exist, it would be easier for him to increase his crop 
by applying a larger amount of labor and capital to the old 
land. Generally speaking, the new land he breaks up is 
not quite so good as the old ; yet it pays him better to raise 
the additional produce from poorer land than to " force ^' 
the cultivation of the older and the richer tracts. Every 
time a body of population leaves an old country to break 
up land in a new one, fresh testimony is paid to the exist- 
ence of this law, which, indeed, has furnished the main 
motive force of the migrations which make up so large a 
part of human history. 



POLITICAL ECONOMY. ^'7 

. And this law applies universally to all the produce of the 
land, whether in the form of '' crops/' or of ore from the 
mine, or of fish from the sea, or of timber from the forest, 
or of wool and flesh from the sheep that graze over the un- 
broken ground : only, in these latter cases, the operation of 
the law is more apt to be disguised, or hidden from view, 
by other causes. 

Let us take, for illustration, the ore from the mine. The 
larger the quantity of ore which it is necessary to raise, the 
deeper must the miner go into the crust of the earth. The 
deeper the mine, the greater the labor of pumping out the 
water which continually tends to flood it ; the greater the 
labor required for ventilation, to force in fresh air and ex- 
pel the poisonous gases which are every hour forming in the 
shafts and galleries ; the greater the labor required to hoist 
the ore, ton after ton, to the surface. 

28. Importance of this Law. — The law of diminishing re- 
turns in agriculture must be mastered in all its bearings, if 
the student is to make progress safely in Political Economy. 
If this*princip]e is not at the time understood, or is subse- 
quently lost sight of, the most monstrously false opinions 
may be formed regarding the production of wealth and 
the conditions of human existence. But for the law of 
diminishing returns, thousands of millions of men might 
live in the United States as comfortably as tens of millions. 
As it is, all mankind dwell, and must forever dwell, under 
the shadow of this condition. After a certain point has 
been reached, land will only yield the material for food, 
clothing and shelter in continually, and after a while, 
rapidly, diminishing proportions, in return to man's effort. 

And that " point" is not merely a theoretical one, or one 
which, while it might be, is not likely ever to be, attained. 
The point of diminishing returns has already been reached 
in most of the countries of the world. In many, it has long 



28 POLITICAL EGONOMT. 

since \)een passed, with the result of misery, squalor and 
disease to helpless millions. Even the "new countries'* 
of the globe are rapidly approaching that point. 

Of course, when one is reasoning in regard to the opera- 
tion of any force, he is always understood to mean ^' other 
things equal." Now, as other things seldom, are equal at 
any given time, and as they tend to become more and more 
unequal from time to time, the conclusions one may reach, 
in writing of the operations of any simple force, will re- 
quired to be understood, or to be qualified, or to be modi- 
fied, or to be corrected, according as other things are un- 
equal. The fact that other things, which affect the culti- 
vation or enjoyment of the land, change greatly, from, time 
to time, has obscured the law of diminishing returns, in the 
sight of the unthinking, and has even led some generally 
intelligent persons to deny its existence. 

29. Causes which set back the Point of Diminishing Re- 
turns. — Thus, when we say that, after a certain point, the 
produce of the land can only be increased through a more 
than proportional application of labor and capital, we as- 
sume, among other things, that the art of agriculture re- 
mains the same. If improvements take place, these will 
not change the law, but they will change the point at which 
the law begins to apply. Let us illustrate. One hundred 
years, or fewer, ago, it was universally believed that, if a 
piece of land were to be cultivated every year, through a 
considerable period, it would become exhausted : that is, 
the land would lose its fertility and would thereafter be 
worthless. Consequently, it was held that, for one year 
out of three, or out of four, land should be allowed to lie 
" fallow," that is, uncultivated, and no demand be, for 
that year, made upon its productive essences. Now, under 
this condition, it might have happened that a community, 
with a certain number of people, cultivating, say, 6000 



POLITICAL EOONOMT. 29 

acres, had just reached and touched the point of diminish- 
ing returns ; i.e., the number of laborers being what it was, 
the product, per laborer, was then greater than it would 
have been with a larger number of laborers. More labor- 
ers would, indeed, have produced more corn ; but not 
enough more to make each laborer^s share as large as be- 
fore. Now, in the case of this community, it might have 
happened that, just at this point, the principle of the 
"rotation of crops "was discovered. What is that prin- 
ciple ? This : that different crops do, to a considerable 
extent, draw different elements from the soil. Crop a 
takes element a; crop l, element d ; crop c, element c. 
Consequently, a piece of land which had been cultivated, 
one year, in crop «, and the next year in crop I, might 
really be resting as to elements a and h, while producing 
crop Cf the third year. 

The discovery of this principle would clearly change the 
point of diminishing returns, in the case of the community 
we have supposed. Formerl}^, it may have been the custom 
to let the land lie idle one year out of three : in that case, 
only 4000 acres could be cultivated in any given year. 
Now, 6000 acres may be cultivated every year, which gives 
the same result as if the land had Men increased to 9000 
acres, without the rotation of cropso Consequently, the 
number of laborers may increase for a considerable time be- 
fore they reach the new point of diminishing returns. 

30. EflpBct of Agricultural Improvements. — One hundred 
years ago, land, in the most highly civilized countries, was 
cultivated by means of shabby little ploughs with, at best, an 
iron tip upon the share. Consequently, the soil was brought 
up by the plough from but a little depth ; and it was almost, 
though not quite, the same as if the soil itself had been 
shallow. Our own President Jefferson is said to have been 
the inventor of the first iron plough. By little and little. 



30 POLITICAL ECONOMY, 

the iron plough grew larger and stronger, bringing up the 
soil from greater and greater depths. 

Now, an acre which is ploughed to the depth of sixteen 
inches may not, taking ten or fifty years together, produce 
twice as much as an acre which is ploughed to the depth 
only of eight inches, but it will certainly produce a great 
deal more in any year or during a term of years. If we 
suppose, then, that, in the community we have been talk- 
ing about, the point of diminishing returns had again been 
reached, by the increase of laborers, in spite of the rotation 
of crops, it might happen that this point would be once 
more changed through the introduction of deep ploughing- 
The 6000 acres, cultivated to the depth of fourteen or six. 
teen inches, would be equal to 8, 9 or 10 thousand acres, 
perhaps, when cultivated to the depth only of six or eight 
inches. 

Again, we might suppose that the vegetable species, up 
to this time cultivated, had been such as yielded a very large 
amount of root and stock, for a small amount of grain and 
fruit. If this were the case, the introduction of new vegeta- 
ble species, yielding a large amount of edible matter, to a 
small amount of stalk and root, would be practically equiva- 
lent to increasing the amount of land : that is, a larger 
number of laborers could get from the soil as good a living 
as the smaller number had, before this change. 

In the same way, in the case of a community raising 
sheep and cattle, the introduction of improved breeds in- 
stead of the little, rough, underbred animals which for- 
merly yielded very little of- flesh or of wool or of milk, for a 
large amount of grass consumed, might have the effect to 
move the point of diminishing returns much further off. 

31. The Law Holds, None the Less. — As has been said, the 
introduction of new arts, and the improvement of familiar 
processes, from age to age, has obscured this great law of 



POLITICAL ECONOMY. 31 

agricultural production. So much so that many writers, 
seeing a large population supported in comfort upon lands 
which once yielded a scanty subsistence to a small popula- 
tion, have been disposed to deny the existence of the law 
altogether. But this is an error. At any given time, the 
art of agriculture being as it is, the point of diminishing 
returns is liable to be reached by the increase of population. 
Nor can it be reasonably expected that improvements and 
inventions will indefinitely put-off that point, in the life of 
any community. Sooner or later, later or sooner, according 
to circumstances, that point must be reached ; and if the 
number of laborers thereafter increases, each laborer must 
be content with a smaller product : that is, with meaner 
subsistence. 

32. Effect of Diminishing Returns in Agriculture upon 
the Products of Manufacture. — The law that has been de- 
scribed governs all the productions of the land. How does 
it stand related to the products of manufacture? I answer: 
Only so far as the materials are concerned. All these are 
derived, more or less directly, from the land ; and the cost 
of producing them, or their price in the market, inevitably 
feels the influence of the law of diminishing returns in 
agriculture. But all kinds of manufacture do not employ 
the same amount of materials derived from the soil, for a 
given amount of labor and capital ; and, as the efficiency 
of labor and the efficiency of capital are not subject to the 
same law, it follows that different industries may be differ- 
ently affected. The influence of this cause may be very 
great in one branch of industry, while in another it is so 
slight as to be scarcely worthy of notice. For example, 
iron ore and coal are products of the land, and conse- 
quently subject to this law. The greater the quantities 
required, the deeper into the earth's crust must mining 
operations be carried, the larger the amount of labor in- 



g^ POLITICAL ECONOMT, 

volved in getting out a ton of either. Now, pig-iron is a 
product of iron and coal, treated by labor, aided by capital, 
in a way wliich we shall hereafter be called to note. A 
large increase in the cost of coal and iron ore will cause a 
large increase in the cost of pig-iron. That increase, how- 
ever, will not be so large, proportionally, in the latter as in 
the former case. The cost of the ore and coal required to 
make a ton of pig-iron may have been enhanced from |6 to 
$7 ; but, if the manufacturer of pig-iron can now sell his 
product for 113, instead of 112, as before, he will make 
himself good for the additional dollar which the coal and 
the iron ore have cost. In this case, the increase in the 
cost of the coal and the iron ore, due to the principle of 
diminishing returns, has been one-sixth ; while, in the case 
of pig-iron, it has been only one-twelfth. 

33. Apply More Labor Still. — Again, wrought-iron, in a 
great variety of forms and for many uses, is a product of 
pig-iron and coal, treated by human labor, aided by capital, 
as before. A ton of pig-iron, worth |13, might be worked 
up into hardware of many kinds, a part being worth 30 
dollars a ton ; other portions, 50, 75 and 100 dollars ; other 
portions still, to which more labor and capital had been ap- 
plied, 200 or 300 dollars ; other portions still, i.e. fine cut- 
lery, watch springs and surgical and philosophical instru- 
ments, being worth 500 or 1000 dollars a ton. Now, the 
reader will observe that, all through this process, it is only 
the increased cost of the original coal and iron ore, and of 
the small additional amount of coal or charcoal, for the 
shaping, welding or tempering heat required, which is due 
to the principle of diminishing returns. The same cause 
which would double the cost of pig-iron, might increase the 
cost of knives and watch-springs very slightly. 

Again, if it became necessary to cultivate poorer fields, or 
to raise larger crops from the same fields, in order to supply 



POLITICAL ECONOMY. 33 

the community with cotton, and the price of cotton were 
thereby increased from ten cents to twelve, a pound, this 
would have a great effect upon the cost of coarse cotton 
cloth, but a comparatively small effect upon the finer pro- 
ducts, such as thread and lace. If the price of lumber 
were to be doubled by the necessity of going to distant 
forests, or by the necessity of resorting to smaller trees, 
the larger ones having been cut away, this would have an 
immense effect upon the cost of a rough shed ; a smaller 
effect upon the cost of a neat cottage, where the boards 
should be planed and matched and fitted nicely ; a much 
smaller effect upon the cost of an elegant mansion, where a 
great deal of labor is expended in carving and turning and 
polishing the material. 



CHAPTER VI. 
LABOR. 

34. Labor, as an Agent of Production — It was said that 
the three primary agents of production are land, labor and 
capital. We have now spoken, so far as is at present neces- 
sary, of jand. Let us next speak of labor. 

This term is applied to the efforts and sacrifices of human 
beings directed towards the production of wealth, i.e., the 
creation of values. Mere muscular exertion is not labor, in 
the sense of the political economist, since the muscular 
power of dumb animals belongs to capital. It is even a 
question whether the work of slaves should be treated as 
labor, in the economic sense. Some writers have insisted, not 
without reason, that, so long as human beings are bred and 
reared in servitude, made to work without their own con- 
sent, and not allowed to receive the reward of their own ex- 
ertions, whatever they do in the production of wealth comes 
under the law of capital, as we shall hereafter see it. The 
question is one which is not important to discuss. 

Not even all the muscular exertions of free human beings 
belong under the head of labor. As severe efforts are often 
put forth in sport or play or for the admiration of bystanders, 
as for the production of wealth. The sacrifices to which a 
boat's crew of young men submit, the exertions which they 
make during months of training, as well as the tremendous 
physical struggle to which these lead, are not labor, in the 
economic sense. On the other hand, the work of the pro- 
fessional ball-team, whether in practice or in their occa- 
kj^y 34 



POLITICAL ECONOMY. 35 

sional contests, is labor, in the full economic sense, because 
it is directed towards the creation of values. Those sacri- 
fices are submitted to, those exertions made, in order to draw 
to their games hundreds or thousands of spectators, each of 
whom pays his shilling, or his two shillings, for the pleasure 
of seeing an exhibition of high skill and great physical 
force. 

35. What Does " a Day's Labor " Mean? — We have, in the 
last chapter, spoken of the application to land of certain 
"■ amounts of labor " for the production of wealth. It is, 
however, difficult to apply a universal measure to the 
quantity of labor made use of in any given case. When we 
speak of a " horse-power," we mean the force necessary to 
raise 33,000 pounds one foot upward into the air in one 
minute of time ; and, inasmuch as the downward attrac- 
tion of gravity is substantially the same on all parts of 
the surface of the earth inhabited by man, a "horse-power" 
means the same thing, the world over. But a day^s labor * 
means a very different thing in one of the Pacific Islands 
from what it does in Bengal. It means a very different 
thing still, in Kussia. It means a very different thing in 
Russia from what it does in England. 

There is, then, no absolute, single measure by which we 
can determine and express " amounts of labor." But we can 
bring into comparison men of the same country, men even 
of different countries, under conditions, as to land and as 
to tools and machines, nearly enough alike to enable us to 
say that very wide differences, as to labor-power, exist 
between individuals of the same country, and between the 
men of one country, taken as a whole, and the men of 

* In his history of England, Lord Mahon [Earl Stanhope] states 
that an English woodsawyer would do as much work in one day as 
thirty-two Bengalees, at the same business, under precisely the same 
circumstances. 



36 POLITICAL BGONOMT. 

other countries. These differences let us now try to ex- 
plain. 

Causes of Diffekekoes in" In'dusteial Efficiekcy. 

These causes are very numerous ; but the chief may be 
mentioned as follows : 

36. (I) Differences in Inherited Health and Strength. — 
No matter how it came about, whether as the result of the 
influences of climate, or as the result of other causes work- 
ing in the past, it is true that the men living, at any given 
time, in one country were born with a greater capacity for 
exertion than those of another country. Even if supplied 
during infancy and childhood with the same food, and 
brought up in every respect under similar conditions, the 
men of the former country would, at 15 or 25 or 40 years 
of age, have a greater lifting or pulling strength, and would 
be capable of far more prolonged exertion, than the men of 
the other country. In every community there is a certain 
capability of labor inherited from the past ; and that in- 
heritance varies widely in different countries and in differ- 
ent races. In this respect compare the South Sea Islander 
or the Bengalee with the Englishman or the Irishman. 

37. (II) Food. — Between individuals of the same nation 
and the men of different nations, who have inherited the 
same capability of labor, great differences as to labor-power 
would be caused by differences in the food-supply, both 
during the period of youth and growth, and during the 
period of active exertion. Take three men of the same 
natural powers, and feed one of them on the small amounts 
of rice which make up the diet of an East Indian; the 
second on the scanty supply of potatoes and buttermilk 
which is all the Irish peasant at home can hope to receive; 
the third on the great variety of vegetable and animal food 



POLITICAL EdOnOMT. 37 

which makes 'ip the subsistence of a North American far- 
mer, and you will have widely different results, in the three 
eases, as to the capability of severe and sustained exertions. 
To a very great extent, what a working man can do, in a 
given time, depends upon the quantity and the quality of 
food he has to eat. To neglect this consideration, in speak- 
ing of the labor of different countries, and often of different 
classes in the same country, is to make a great blunder. 

38. Food is the Fuel of the Human Engine.— The food 
which is supplied to the laborer, to enable him to work, 
bears much the same relation to his efficiency, or work- 
power, as the fuel put into the furnace, beneath the boiler, 
bears to the efficiency of the engine. The stomach is, in a 
high sense, the furnace of the human machine. It is there 
all the power is generated which is to move the limbs in 
severe and protracted exertions for the production of 
wealth, just as the engine derives all the power it has to 
drive the wheels, which move the machinery of the mill, 
from the combustion of fuel in the furnace. Up to a cer- 
tain point, the more fuel is fed to a furnace, the more 
steam power is created. Likewise, up to a certain point, 
the more food is given the laborer, the more labor power is 
developed. 

Not only is it true that, up to a certain point, labor power 
increases with the increase of food; but labor power in- 
creases at a more rapid rate than does the food itself. It is 
the same with the fuel in the furnace. If we suppose that 
a furnace, of a certain size and pattern, required, for its 
best working, 100 pounds of coal, it would by no means 
follow that 50 pounds would do half as much work ; it 
might do only one-third as much, or one-quarter as much. 
This, clearly, would be an uneconomical use of the machin- 
ery. Tf, again, the supply of coal were to be reduced to 
?5 pounds, the ©ngine might not do enough work to make 



38 POLITICAL ECONOMY. 

it worth while to use it at all. This would be a very un- 
economical use of the machinery. If we suppose the 
amount of solid food, of a certain standard, which was re- 
quired to keep an able-bodied man in condition to do his 
best work, was 250 oz. a week, it would not be true that 
with 200 oz. he would do four-fifths as much ; with 150 oz., 
three-fifths as much ; with 100 oz., two-fifths as much. On 
the contrary, the first hundred ounces might only suffice 
to keep him alive, doing no work at all. The next 25 
oz. might enable him to crawl feebly about, working with 
little energy and through short periods of time. With 150 
oz., he might easily do twice as much work as with 125 
oz. ; with 200 oz. twice as much as with 150. 

Hence it will appear that it is a very uneconomical use of 
food to give it in such small amounts as 100 or 125 or 150 
oz. per week. Every additional ounce of food, up to a 
certain point, creates more work power than any of the 
ounces which preceded. 

39. Is there any Limit? — There is, of course, a limit to 
the increase of labor power through increase of food. 
After a certain point, the advantage resulting from a more 
liberal supply might be small ; at a still further point, it 
might cease to be an advantage at all ; a little later, the 
point might be reached where a still further increase ot 
food might be positively deleterious, leading to physiologi- 
cal obstruction and disease. These successive points change 
according to the constitution and habits of individuals, 
according to climate, according to occupation, according to 
circumstances innumerable. But for each person, there is, 
at any time, an economic maximum of food, the consump- 
tion of which will, in his case, yield the largest amount of 
working power, for each unit of food. If more food be 
taken into the system, there may be a still further creation 
of laboring power; but the gain will be less than pro- 



POLITICAL EOONOMT, 39 

portional. If less than this economic maximum of food 
be given^ the amount of working power developed will not 
only be less, but less for each unit of food. As the supply 
is reduced^ this loss of labor-force goes on at a ratio which 
is much more rapid than the ratio of the reduction of food. 
When a certain point has been reached, the amount of 
labor power generated by each unit of food is so small, 
that, speaking only with reference to the production of 
wealth, we may say that the food so given is wasted. Were 
it not human beings but dumb animals that were concerned, 
no one would hesitate to say that it would be more profit- 
able to kill them than to feed them so low. 

40. How Laborers are Underfed in the Old Countries. — 
It is very difficult for an American, brought up in the 
midst of plenty, in a land where the point of diminishing 
returns has not been reached, to realize how mean and poor 
is the subsistence of a great part of the inhabitants of the 
world. Except in a few favored countries, nearly all of 
them, like our own, " new countries, ^^ and except among 
the most favored classes in a few other countries, the 
laborers of the world receive far less than the economic 
maximum of food. In some countries, the amount of food 
going to the average laborer is so small as to fairly reach the 
point indicated by the last sentence of the preceding para- 
graph. As a matter of self-interest, it would not pay to 
keep horses and cattle at all, unless they were to be better 
fed than are hundreds of millions of our f ellow-creatui es. 

The miserably inadequate diet of the people of China 
and India, keeping them all the time on the very verge of 
famine, is so familiar, from common report, as not to re- 
quire to be dwelt upon here. I will quote a few facts from 
official reports or from the writings of well-known econo- 
mists, regarding the food of the working classes in some of 
the more favored countries of Europe. 



40 POLITICAL ECONOMY. 

Of the industrial classes of France, Lord Brabazon wrote, 
in 1872 : ^^ Many a French factory hand has never anything 
better for his breakfast than a large slice of common sour 
bread, rubbed over with an onion so as to give it flavor." At 
about the same time, Mr. Locock wrote, from the Nether- 
lands : ^^ Meat is rarely tasted by the working classes in 
Holland. It forms no part of the bill of fare, either for 
the man or his family." From Belgium Mr. Pakenham 
wrote: ^' Very many have for their entire subsistence but 
potatoes with a little grease, brown or black bread, often 
bad, and for their drink a tincture of chiccory." Now, 
France, Holland and Belgium are not among the worst but 
among the best countries of Europe, industrially speaking. 
If we cross over the Channel to England, which is the 
richest country of Europe, we find, even there, that a large 
portion of the laboring class are kept below the economic 
limit of subsistence. "In the west of England," wrote 
Prof. Fawcett, about 1864, "it is impossible for an agri- 
cultural laborer to eat meat more than once a week." * Of 
the peasants of Devonshire, Canon Girdlestone wrote, a little 
later: "The laborer breakfasts on tea-kettle broth — hot 
water poured on bread and flavored with onion — dines on 
bread and hard cheese at twopence a pound, with cider 
very washy and sour; and sups on potatoes or cabbage 
greased with a tiny bit of fat bacon. He seldom more than 
sees or smells butcher's meat." 

Bad as the state of things was when Prof. Fawcett and 
Canon Girdlestone wrote, it had been even worse in the 

* And yet Prof. Fawcett could write that " it is physically im- 
possible that any permanent rise in wages should take place without 
corresponding diminution of profits." If there were any physical 
impossibility in the case, it would seem to be the impossibility that 
such wretched peasants could be better fed without adding to the 
profits of their employers. 



POLITICAL ECONOMY. 41 

preceding generation. The poor law commissioners of 1833 
reported, that at that time, while the British soldier was 
receiving 168 oz. of food, per week, according to a certain 
standard, and even the public pauper was receiving 151 
oz., the agricultural laborer received but 122 oz. Now, it 
goes without saying that, when the laborer, toiling from 
morning to night in the field, receives a smaller amount of 
nourishment than the sense of public decency will allow to 
be given to paupers, the laborer is underfed, in the sense 
that he will and must underwork. 

The reader will naturally ask why, if laborers receiving 
more food would do more and better work, employers do 
not furnish more ample subsistence. This important ques- 
tion can only be answered when we reach the chapters on 
distribution. 

41. (Ill) Sanitary Conditions.— In order to secure the 
laborer's greatest efficiency, it is not only necessary that he 
should have an abundance of good food, but that there 
should be an ample supply of fresh air. After the food, 
which has been taken into the stomach, has been digested 
and turned into blood, that blood must pass into the lungs 
and be there purified. Carbonic acid is to be thrown off, 
and oxygen taken in from the air. But if the oxygen has 
been used up and the air is already loaded with carbonic 
acid, that purification cannot take place. The human 
being, so situated, becomes heavy and dull, his blood be- 
comes foul, and the tissues tend to corruption. In such a 
case, a large amount of food taken into the system may 
even become a source of weakness and ill-health. 

Moreover, in close and unventilated rooms are likely to 
be found the germs of active diseases which shorten life or 
permanently impair physical activity. So great is the effect 
of this cause that we have here the explanation of no small 
part of the differences of working force which are found 



43 POLITICAL ECONOMY. 

among the laborers in different countries. The first great 
prison reformer, John Howard, shocked the world with the 
revelations which he made of the way in which the convict 
classes were housed ; yet Mr. Edwin Chadwick could say, in 
1842: *^More filth, worse physical suffering and moral dis- 
order than Howard describes as affecting the prisoners, are 
to be found among the cellar population of the working 
people of Liverpool, Manchester and Leeds, and in large 
portions of the metropolis.^' 

Even the agricultural population was not much better 
provided for. The following is a description given by the 
poor law commissioners, of the cottages of the county of 
Durham: ^'The chimneys have lost half their original 
height, and lean on the roof with fearful gravitation. The 
rafters are evidently rotten and displaced, and the thatch, 
yawning to admit the wind and wet in some parts, and in 
all parts utterly unfit for its original purpose of giving pro- 
tection from the weather, looks more like the top of a 
dunghill than a cottage. Such is the exterior ; and when 
the hind comes to take possession, he finds it no better 
tnan a shed. The wet, if it happens to rain, is making a 
puddle on the earth floor. . . . They have no byre for 
their cows, nor sties for their pigs ; no pumps or wells ; 
nothing to promote cleanliness or comfort. The average 
size of these sheds is about 24 by 16. They are dark and 
unwholesome ; the windows do not open, and many of them 
are not larger than 20 inches by 16 ; and into this place are 
crowded 8, 10, or even 12 persons. ^^ 

In Scotland the case was scarcely better. Sir James 
Caird stated, that, in 1861, one-third of the people lived in 
houses of one room only ; another third, in houses of two 
rooms only. Prof. Gardiner, writing of Glasgow, said: 
'^Out of a population of 85,000 householders, 30,000 or 
35,000 belonged to a class who are most dangerous in a 



POLITICAL ECONOMY. 43 

sanitary point of view." The dwellings of Ireland were 
even worse. Mr. Inglis thus describes the city homes of 
1834: *' Hovels, cellars, mere dark dens: damp, filthy, un- 
wholesome places, into which we should not, in England, 
put any domestic animal.'' 

If it is in homes such as have been described, that chil- 
dren grow to maturity and get the size and strength which 
are to determine their quality as workers, what wonder that 
they become stunted, weazen and deformed! If it is in 
homes like these that laboring men have to seek repose and 
refreshment, after the day's work ; that they breathe the 
air which is to oxidize their blood, and eat and digest the 
food on which to-morrow's work is to be done, what won- 
der that the blood of manhood becomes foul and lethargic, 
the nerves unstrung, the sight weakened or distorted, the 
whole tone of life and of labor depressed ! 

42. (IV) Intelligence. — The three causes we have thus 
far adduced, are physical, affecting the muscular power and 
endurance of the laborer. The cause now mentioned is 
mental. It is the laborer's intelligence which enables him 
to apply his bodily force to his work, not only with effect, 
but with the greatest effect. How great a factor in in- 
dustrial efficiency the general intelligence of the laborer 
may be, is only seen when we consider the several elements 
which make up that efficiency. 

{a) The intelligent laborer requires a much shorter ap- 
prenticeship ; less of technical instruction. It is said that 
the recruits in the British army who can read and write 
learn their drill in one half the time taken by recruits who 
cannot read and write. 

{l) The intelligent laborer requires far less superintend- 
ence. Superintendence is always costly. If an overseer is 
required for every ten men engaged on a piece of work, the 
product must pay for the time not of ten men, but of 



44 POLITICAL ECONOMY, 

eleven. If the overseer, as is most likely, gets twioe the 
wages of a common laborer, then the product must pay for 
the time and labor of twelve men. The employer could 
just as well afford to pay his men 20 per cent, more, could 
he dispense with the overseer. 

(c) The intelligent laborer is far less wasteful of mate^ 
rial. No product can be obtained by labor, even in agri- 
culture, without the sacrifice of pre-existing wealth. Would 
you raise a crop of wheat ? a bushel must be sown for every 
six or eight bushels to be reaped ; and with it, perhaps, 
large quantities of costly manures. In mechanical indus- 
tries, the value of materials used in manufacture is often as 
great as the amount of wages paid. Frequently the value 
of materials consumed is greater, sometimes much greater, 
than the amount paid in wages: in some cases, twice as 
much, in others, five times as much. If, then, an unin- 
telligent laborer is going to waste, or spoil, or in any degree 
injure, the materials given him, he will soon do more harm 
than his labor is worth. 

(tZ) The intelligent laborer can use delicate and intricate 
machinery to advantage, and he alone can. In most coun- 
tries no machines are used in agriculture, but only the 
simplest and coarsest of hand tools. This is not, mainly, 
because the people are too poor to have machines, but be- 
cause they are too ignorant to use them. Were the best 
peasant out of twenty to be given a mowing machine, or a 
reaper, he would bring it so quickly to wreck and ruin as 
to offset the value of his whole summer^s work. The 
United States is, indeed, the only large country in which 
the ordinary agricultural laborer can be trusted with com- 
plicated machinery. 

In manufactures, the difference wrought by intelligence 
or want of intelligence on the part of the working classes is 
even greater. In some parts of Eastern Europe, even the 



POLITICAL BGONOMY, 46 



primary *' mechanical powers " are not made use of. If the 
inhabitants wish to lift a weight, they do it by main force, 
instead of using the pulley, the windlass or the inclined 
plane. As to the complicated and expensive machines em- 
ployed in factories, the ordinary European peasant has no 
fitness whatever for dealing with them. 

43. (V) Cheerfulness and Hopefulness in labor. — The 
cause now adduced is moral, affecting the will, which con- 
trols alike the physical and the mental powers of the la- 
borer. Since severe and sustained exertions are naturally 
irksome,* cheerfulness and hopefulness in labor must grow 
out of the self-respect and social ambition of the laborer 
and his personal interest in the result of his work. It is 
here, that is, in the moral elements of industry, that we 
find the most potent cause of differences in efficiency. 
Cheerfulness and hopefulness in the laborer become the 
spring of exertions, in comparison with which the brute 
strength of the slave is but weakness. Chattel labor is 
always and everywhere ineffective and wasteful, because it 
has not its reward. As Adam Smith said, a person who 
can acquire no property, and does not even own himself, 
can have no other interest than to eat as much and work as 
little as possible. No matter how complete the power of 
the master over the person and over the life, he cannot 
command all the faculties of his slave. The slave may be 
made to work, but he cannot be made to think ; he may be 
made to work, but he cannot be kept from waste ; to work, 
indeed, but not with energy. 

* Yet in this respect the races of men differ widely. It is oae of 
the fruits of culture that the operation of the mental and physical 
powers becomes, every generation, less and less irksome, until, with 
the men of the best brain endowment, effort becomes actually pleas- 
urable. But, for the vast majority of mankind, in their present 
stage of development, the statement in the text needs but slight 
qualifications. 



46 POLITICAL ECONOMY, 

Energy is not to be called forth by threats and blows, 
but by hope, ambition and aspiration. The whip cannot 
reach the parts of the man where lie the real springs of 
action. The slave cannot, if he would, work as if he were a 
freeman. The nervous force is only in a small degree under 
the control of the conscious will. It is only when some 
passion of the higher nature, love, gratitude or hope, is 
awakened, that a man can render his best service. 

44. Unprofitableness of Slave Labor. — Had it not been 
for the impotence of the lash, the nations would have risen 
far more slowly from the almost universal condition of 
slavery. The slave has always been able to make it for his 
master^s interest to sell him freedom.^ He could always 
afford to pay more than any one else could make out of him. 
Hence, the former slave-states of the American union, 
building their political and social institutions upon slavery, 
as the corner-stone, had to forbid or restrict the exercise of 
manumission. Even with the little the black could appre- 
hend of the privileges of freedom, even with his feeble hopes 
and aspirations, condemned by his color to social exclusion, 
he could always buy himself, if allowed to do so. This un- 
profitableness of slave or bond labor, it was, which prepared 
the way for those great changes which transformed whole 
populations of slaves or serfs into nations of freemen. 

Among free laborers, great differences in industrial effi- 
ciency are found to exist, according as the reward of labor 
is near and certain, or distant and doubtful. It is in the 
case of the proprietor of land, under just and equal laws, 
that the incentives to industry are found most acute. He 
knows that every stroke of his arm is creating value, which 
he, himself, and his children after him, will enjoy to the 
full. Neither bell nor whip is needed to drive him afield. 
He goes gladly to his work, at the first flush of morning ; 
and the setting of the sun finds him still hoeing the corn. 



POLITICAL ECONOMY, 411 

or tying up the vines, or tinkering the sheds, or caring for 
the cattle. Long as is his work-day, he is not worn out at 
the close. The waste of muscular force is, in such labor, at 
its minimum. Nervous exhaustion comes late and comes 
slowly to him who sees his reward manifestly growing 
under his hands. 

It is not alone active exertion which is called out by the 
proprietorship of land. Of even more consequence is the 
care which is taken to prevent injury and waste ; to keep 
tools and implements in order ; to save the growing vines 
and plants from their thousand enemies ; to keep the live 
stock at their best ; to store and house the gathered crops. 

45. Industry and Frugality Awakened by Ownership. — 
The familiar examples of industry and frugality, are those 
afforded by the peasants of France, Holland and Switzer- 
land, in the cultivation and care of their little estates. A 
hundred years ago an eminent traveller, Arthur Young, 
wrote, of a certain district in France: ^^An activity has 
been here that has swept away all difficulties before it and 
has clothed the very rocks with verdure. It would be a 
disgrace to common sense to ask the cause : the enjoyment 
of property must have done it. Give a man the secure 
possession of a bleak rock and he will turn it into a garden : 
give him a nine years' lease of a garden, and he will turn it 
into a desert. '' Many of the vineyards which greet the eye 
of the traveller, along the Rhine, have for their entire soil 
earth which has been carried, in baskets, up the mountain 
side by the laborious peasantry. " When I used to open 
my casement," wrote Mr. Inglis of his stay in Zurich, ^^ be- 
tween four and five in the morning, to look out on the lake 
and the distant Alps, I saw the laborer in the fields ; and 
when I returned from an evening walk, long after sunset, 
there was the laborei^ mowing his grass or tymg up his 
vines." 



48 POLITICAL BGONOMT 

I said that it was the proprietor of land, under just and 
equal laws, who exhibited, in the highest degree, industry 
and care for the preservation of wealth. We have two very 
striking examples of the impairment of these qualities by 
unfair conditions or laws. It would certainly make any 
one laugh, to-day, to hear the Scotch people spoken of as 
indolent. Their energy and activity has been shown in all 
the corners of the earth ; yet, a hundred and thirty or forty 
years ago, ^^the lazy Scotch ^^ were a proverb throughout 
Europe for negligence and indolence. This was because of 
the system of short leases, then almost universal in Scot- 
land, which robbed the laborer of a greater part of the 
proper fruit of his exertions. A single act of wise legisla- 
tion, providing for long and secure leases, changed all this, 
and brought out the real energy and spirit which are innate 
in the Scottish character. 

Only half as long ago, the Irish were known, in their own 
country, as hopelessly lazy. This was universally believed 
to be a part of their character. It was, in fact, the creation 
of unjust laws and a bad system of land tenure. When the 
Irish, emigrating under the pressure of famine, found 
themselves upon new lands, under strange suns, having an 
equal chance with others, they soon showed themselves the 
equals of any in hard and patient labor. 

46. The Hireling. — We have thus far been speaking of 
men working for themselves, and entitled to receive all the 
fruits of their labor. Whenever men take the position of 
hired laborers, working for wages, some part of this hope- 
fulness and cheerfulness in labor, which we have seen to be 
the fruitful source of strenuous exertions, is, by the very 
nature of the case, lost. If a man working at wages, for 
another, does not put into his work all the energy he would 
if working for himself, if he fails to exercise all the care of 
tools, implements, materials and product which he would 



POLITICAL ECONOMY, 49 

were they Ms own, this is not wholly a matter of blame. 
We have already seen that not all the springs of activity are 
under the control of the conscious will ; and it is scarcely 
possible for any man, no matter how sincere his intentions, 
to do all for another which he would for himself. At 
the same time, it must be said that there is a great dif- 
ference among individuals of the same community, and 
also among the men of different nations and races, in re- 
gard to the capability of doing the work of others, as if it 
were one's own. There are men, there are even nations, 
that have this capability in a high degree. 

It need not be said that these are the nobler nations ; 
and that the spirit of fidelity and devotion to duty, thus 
carried into hired labor, has also its political reward, mak- 
ing these nations more strong and peaceful at home and 
more powerful abroad, than those which have a lower 
capability, in the direction of which we have been speak= 
ing. 



CHAPTER VII. 

LABOR CONTINUED— THE ORGANIZATION OF 
INDUSTRY. 

47. The Division of Labor. — We have thus far spoken ol 

the causes which produce differences in working force, or 
labor power, among individuals. We are now to consider 
certain causes which give to large bodies of laborers, whether 
individually weak or individually strong, a greatly increased 
power of production. These may be embraced under the 
title, organization of industry, though that term is not 
altogether satisfactory. Let us first speak of what is called 
the Division of Labor. 

In a very primitive condition of industrial society, each 
man does, as a rule, what every other man does. The 
community is, indeed, divided on the line of sex, the 
women taking up certain duties which are considered more 
suitable to their strength and intelligence ; but the men are 
all herdsmen, or all hunters, or all fishermen, or all tillers 
of the soil, according to the circumstances in which the 
tribe is placed. Each man^s work is like every other man% 
except so far as natural strength, skill, and courage enter 
to make distinction. After a while, however, in such a 
community appears the smith, under one name or another, 
cunning to make or repair the implements of the chase or 
of husbandry ; to build boats, or to cover-over the humble 
dwellings of the tribe. The smith, by virtue of his skill, 
fares better than all the others, except the chiefs, yet the 
hunters or herdsmen or fishermen have more left to them* 



POLITICAL ECONOMY. SI 

selves, after paying for the smith's work, than they had 
when they tried to do smith's work for themselves and did 
it very poorly. As the tribe grows in numbers and in 
knowledge, more and more smiths appear ; and these 
come, in time, to be divided into classes, such as the 
blacksmith, working upon metals ; the carpenter, working 
upon wood, and the mason, working upon stone or brick. 
As wealth increases and the wants of the community be- 
come varied, a great number of occupations come to be 
recognized, until the members of a community are called by 
a hundred different names, to describe their ways of con- 
tributing, individually, to the production of wealth. 

48. Advantages of the Division of Labor. — The advan- 
tages of the division of labor are many. The most impor- 
tant may be indicated as follows. 

{a) The division of labor not only develops dexterity in 
general but it gives technical skill. In a primitive com- 
munity, where each man, by turns, does a great variety of 
work, there is, commonly, little nicety of touch, agility of 
movement or accuracy of vision. To use a familiar phrase, 
it may be said of a member of such a community that his 
" fingers are all thumbs f and that his senses are not sub- 
tle. It is, generally speaking, only when arts and trades 
become developed and are carried to a high point of per- 
fection, that the qualities indicated become the common 
property of the community. 

Not only do a people, among whom the division of labor 
has proceeded far, come to possess this general dexterity ; 
but each person acquires a high degree of technical skill by 
applying himself, day by day and year by year, to his single 
avocation. Adam Smith stated, that, in his day, a good 
blacksmith, who had, however, practised but little in mak- 
ing wrought nails, could, by giving his whole day to the 
work, make, perhaps, two or three hundred nails, of a 



53 POLITICAL ECONOMY. 

rather poor quality. A blacksmith who frequently made 
nails, but without having this for his sole or principal busi- 
ness, could perhaps make eight hundred fairly good nails 
in a day. But a man who gave himself wholly to making 
nails could turn off twenty-three hundred in a day, all of 
the best finish. 

{b) The division of labor saves much time in apprentice' 
ship. A man who had to perform a great variety of duties 
would never become a really skilled workman, but would 
die before he had learned any one of these well. Even 
after the division of labor had appeared and been carried 
far, it still required a great deal of time to thoroughly learn 
one trade. Seven years used to be the period of appren- 
ticeship. When, however, owing to the still greater mul- 
tiplication of arts and the still greater introduction of 
machinery, one of these former trades becomes broken up 
into half a dozen or more, the time required to fit a person 
to do his work in life is greatly reduced. It does not take 
nearly one-fourth as much time to learn to do one thing 
well as to do four things well. Indeed, many people could 
never learn to do four things well, who will yet learn to do 
one thing very well. 

(c) The division of labor saves time that would otherwise 
be occupied in passing from one kind of work to another, 
and in laying down and in taking up the tools of different 
trades. This is a consideration, sometimes of great im- 
portance, sometimes of little importance. 

{d) The division of labor promotes improvements and 
discoveries. Many a man, who, if he had been occupied 
in passing through a long succession of varied duties, would 
never have made any discovery or invention, has, by being 
shut up to one single kind of work, and having his attention 
concentrated upon that alone, come, in time, to devise the 
means of doing rapidly and easily that which before had 



POLITICAL ECONOMY, 63 

been done slowly and painfully. It is true that many of 
the greatest inventions have been due to those who were 
not personally engaged in doing the work to which their 
new machines were intended to apply; but on the other 
hand, there has been an incalculable number of inventions 
which have been the result of confining one ingeniouB 
mind to a single difficult problem. 

It is worth while to notice here, that, while the division 
of labor greatly promotes invention, it sometimes happens 
that, after this has been going on for a long while, inven- 
tion comes in to change the course of things and actually 
to diminish the division of labor. Thus, when Adam 
Smith wrote, there were eighteen different operations in- 
volved in the making of a common pin ; and this extensive 
division of labor undoubtedly contributed to the steady 
improvement of tools and implements used by these differ- 
ent operatives. Sixty or seventy years later, some ingenious 
person invented a pin-making machine, by which the wire 
was drawn out, cut off, sharpened, headed, and all the 
successive processes of manufacture, down to sticking the 
pins into the paper, were performed upon the simple con- 
dition of moving a wheel. 

(e) More important, perhaps, than any of the preceding, 
is the consideration that the division of labor permits the 
adaptation of physical powers and personal qualities 
throughout a great variety of work, and gives to almost 
every man, woman, or child a place in the industrial order. 
In a thousand industries of the present time, there is some 
part which a feeble or crippled person can perform : some- 
thing which such a person can do just as well as the larg- 
est and strongest. In primitive states of society, the prac- 
tice was often resorted to of exposing sickly or deformed 
children, while infants, to be devoured by wild beasts, or to 
die of hunger or cold. This seems horrible enough ; yet 



54 POLITICAL ECONOMY. 

it is fairly a question whether there was not as much kind- 
ness as cruelty in it, when it is considered that to these 
unfortunates life only could have been protracted misery, 
since society had then no place in which they could work 
and earn their bread. 



Secoi^daey Advantages of the Division of Labok. 

Such are some of the primary advantages of the division 
of labor. There are others which are, by one stage, 
more remote, but not less real or perhaps less important. 
Some of these may be indicated as follows : 

49. (I) Competition. — Where each one of a number of 
persons is every day performing a variety of miscellaneous 
duties, now a little of this and then a little of that, it is 
difficult or impossible to measure the work done by the 
several persons so employed : to say that this one has done 
more, or less, than that one ; to assign credit or blame 
according to real desert. It is, in such a case, moreover, 
difficult or impossible to say how much of the day^s labor 
has gone to this piece of work or to that ; and it is, by con- 
sequence, difficult or impossible to compare the labor-cost 
of things so produced. But when work is so divided and 
the parts so distributed that each man becomes charged 
with a certain definite task, it is not only possible to make 
comparisons between the amounts accomplished by different 
workmen within the same trade, and to make comparison 
between the labor-cost of different articles, but every one, 
at once, naturally, begins to do so. Such comparisons are 
made with ease and confidence ; and with comparison 
enters competition. Every man compares himself with 
his fellow ; every employer makes comparisons among his 
workmen, both as to the amount and as to the quality of 
the work ; each producer looks carefully about, on every 



POLITICAL ECONOMY. 55 

side, to see if there is not some article of equal value that 
can be made at a smaller cost of labor. 

60 (II) A Standard of Performance. — With the laborers 
of a community distributed among different occupations, 
according to their powers and qualifications, and with 
such opportunities for comparison as we have just nov/ 
shown to exist, there comes to be a standard for the per- 
formance of work, in each separate art or trade. Some 
mason, for instance, who is exceptionally true of eye and 
hand, one day lays a better wall than he, himself, had ever 
before done, more straight and even and firm. This im- 
mediately becomes a standard for the future, not only to 
him, but to every other mason in the neighborhood, and 
also to all persons who employ masons. It having been 
once seen that so good a wall can be made, all hereafter 
desire that their walls shall be made not less perfectly. 
After this standard has been reached by the craft, some 
mason, some day, goes ahead of this and builds an even 
better wall ; which, in turn, becomes the standard of fu- 
ture work: and so the thing goes on. What men will do 
depends very much on what they try to do; what they will 
try to do depends very much on what they believe possible, 
or upon examples which they have themselves seen of the 
best work. 

61. (Ill) Esprit de Corps. — With the formation of large 
bodies of laborers, devoting themselves to certain arts and 
trades, there soon arises a sort of public sentiment within 
the craft, which demands of every member that he shall at 
least approach the standard of performance which at the 
time exists, and that he shall not, by his actions, throw dis- 
credit on his fellow workmen. This public sentiment, 
within the trade, often exerts more infiuence on many 
workmen than competition alone would do. A great many, 
who would care little about pleasing their employers, will 



56 POLITICAL ECONOMY. 

do, or will forbear, a great deal in order to keep the respect 
and goodwill of their fellows. 

52. (IV) Industrial Environment. — By these somewhat 
hard words, I mean to express the influence, in addition to 
all that has been before spoken of, which is exerted upon 
the laborers of a community, in general, by their being 
placed in the midst of a great, powerful, and highly organ- 
ized system of production. In such a community, the child 
is brought into the world half an artisan. From his pa- 
rents ho has derived handiness, aptness, quickness, and fer- 
tility of resource. Then, too, he becomes a better work- 
man simply by being accustomed, through childhood, to 
see tools used with address, and through watching the 
alert movements, the prompt co-operation, the precise ma- 
nipulation, of bodies of skilled workmen. The better part 
of industrial, as of every other kind of education, is uncon- 
sciously obtained. And when the boy goes himself to work, 
he finds examples, on every side, to imitate; if he encoun- 
ters an obstacle, he has only to stop, or hardly even to stop, 
to see some older hand deal with the same; if he needs 
help, it, is at his elbow; and, above all, he comes under 
impulses and incitements to exertion, and to the exercise 
of care and pains and ingenuity, which are as strong and 
constant as the impulses and incitements which a recruit 
experiences in a crack regiment, from the moment he dons 
the uniform. 

53. Is there an Offset to this ? — But, it may be asked, is 
not this increase of production at the expense of health and 
life ? Does it not mean that the laborer will be the sooner 
and the more completely worn out? I answer, that, in 
part, this may be so; but that in part, probably the great- 
er part, it IS not true. It is not necessarily true in any 
degree. Two things are to be borne in mind. 

\a) Mankind were made for labor, for patient, energetic 



POLITICAL EGOmMT. 57 

labor. Keen, persistent activity is, up to a certain point, 
not injurious. On the contrary, industry has its sanitary, 
not less than its economic reward. Neither idling nor daw- 
dling over work is beneficial to health. 

{h) A little of disorderly work is often more trying than 
a great deal of orderly work. Perhaps some one of my 
readers will remember a day of travel which was peculiarly 
tiresome. He may have been called up unnecessarily early, 
and have been not a little worn out by the suspense of 
waiting before it was time to start; then, at the last mo- 
ment, it may have been discovered that something was 
lacking. This involved a deal of hurrying to and fro, and 
an anxious and excited search, followed by a sharp run to 
the railroad station. Here it was learned that the train 
was late, and the end of a half-hour of uneasy waiting and 
moving about saw the traveller on his way, already pretty 
well tired out. Further delay upon the track, by reason 
of a ^^ hot-box,^' and a failure of connection at a railroad 
junction, completed the misfortunes of the morning; and 
the traveller arrived at his destination, after a really short 
journey, more used-up than would have been involved in 
making a well-ordered and fortunate trip of five times the 
distance. In the same way, the proper direction of indus- 
try will enable laborers to accomplish much more, with 
much less of nervous strain and muscular wear-and-tear. 
There are some countries where, if you were to enter a fac- 
tory, you would think a small riot was in progress. Every- 
body seems excited and hurried, and there is a great deal 
of shouting and running to and fro; yet, as a matter of 
fact, the machinery is moving at a much slower rate than 
is customary in an English factory, and the '^ output,^' 
per hand, is scarcely one half as much. In an establish- 
ment where each person has his place and perfectly knows 
his duty; where work never chokes its channels and never 



58 POLITICAL ECONOMY, 

runs low; where nothing comes out wrong end foremost; 
where there is no fretting or chafing; where there are no 
blunders or catastrophes ; where there is no clamor and no 
fuss, a pace may be maintained which would soon kill out- 
right the operatives of a noisy, ill-disciplined, badly-organ- 
ized shop. 

54. (V) Mastership in Industry. — When the division of 
labor has been carried a great way, in any community, pro- 
duction receives a tremendous im-pulse from the fact that 
large bodies of labor and capital come under the control of 
individuals who have exceptional ability for the conduct of 
business. In a primitive state of society, the man of great 
brain-power and will-power moves but a single pair of 
hands. In an advanced industrial state, he may move a 
thousand. If his choices as to what shall be done, how 
it shall be done, when it shall be done, are judicious, there 
cannot fail to be a vast gain in the amount of work done 
and in the amount of waste saved. 

The division of labor in its first stages does not require 
the introduction of the master class. When the forms of 
production are few, and the materials are simple; when 
only hand-tools are used, and the artisan, working at his 
bench, makes the whole of an article; when styles are 
standard and the consumers of a product live close at hand, 
the need of the employer is not greatly felt. Each artisan 
may carry on his work, in his own little shop, and keep up 
with the others. 

But when the hand-loom gives place to the power-loom ; 
when great numbers of persons, of all degrees of skill and 
strength, are brought into the giant factory, each perform- 
ing one simple operation, knowing perhaps nothing about 
any other; when powerful and delicate machinery is intro- 
duced; when costly materials have to be brought from the 
four quarters of the globe, and the product is to be distrib- 



POLITICAL EOOMOMT. 59 

Uted, by the agencies of commerce, throughout distant 
lands, then the employer becomes not only a necessity of 
the situation, but the master of the situation. If he have 
the genius to plan, he can find a thousand helpers, each of 
whom will do his own part perfectly, yet not one of whom 
but would have been utterly helpless and amazed in the 
face of the difficulties and dangers which only bring into 
keener exercise the powers of the real man of affairs. 

56. Business Ability as the Fourth Grand Agent in Pro- 
duction. — At the close of Chapter III, we spoke of three 
great primary agents of production, viz.. Land, Labor, and 
Capital; and that statement suffices for a primitive society. 
But when we undertake to account for either the pro- 
duction or the distribution of wealth, upon the vast scale 
of modern industry and trade, in all enlightened and pro- 
gressive nations, it becomes necessary to introduce a fourth 
agent of production, viz.. Business Ability; to admit a 
fourth claimant in distribution, viz., the Employer. 

By Business Ability in this connection, we mean ability 
in more than the degree which is required to enable a sin- 
gle laborer or artisan to direct his own production and 
manage his own small affairs; in more, even, than the de- 
gree which is required by the employer of labor in that 
state of industry where the division of labor has proceeded 
but a little way. 

By Business Ability, as a distinct economic agent, we 
mean the power, the capacity, the temper required to do 
business, with at least moderate success, in those later 
stages of industrial organization, when the division of labor 
has proceeded far, when production takes place upon the 
large scale, and with reference mainly to general, rather 
than to local, markets. 



OHAPTEB Vra. 
CAPITAL. 

56. The First Canoe. — ^We have thus far spoken of land 
and labor; we are now to speak of capital. 

The capital of a community is that part of its wealth * 
which is devoted to the production of wealth. 

A very simple illustration will suffice to show the origin 
and office of capital. 

Let us take the case of a tribe dwelling along the shore 
and living upon fish caught from the rocks jutting into 
the sea. Summer and winter together, good seasons and 
bad, they derive from this source a scanty and preca^ 
rious subsistence. When the fish are plentiful, the people 
live freely, even gluttonously. When their luck is bad, they 
submit to privations which involve suffering, sometimes 
famine. Poor as this condition of life is, it is not likely to 
grow any better. Unless some new force enters into the 
life of the tribe, their children and grandchildren will be 
found living just as meanly and precariously. 

But let us suppose that one of these fishermen, moved 
by a strong desire to better his own condition, undertakes 
to lay-by a store of fish. Living as closely as will con- 
sist with health and strength, he denies himself every in- 
dulgence, even at the height of the season; and, so, by lit- 
tle and little, accumulates in his hut a considerable store of 
dried food. As the dull season approaches, he takes all he 

* Excluding land and natural agents, considered as unimproved. 
60 



POLITIOAL ECONOMY. 61 

can carry and goes up among the hills, where he finds trees 
whose bark he detaches by sharp stones. Again and again 
he returns to his work in the hills, while his neighbors, who 
ate more freely than he during the fishing season, are pain- 
fully striving to keep themselves alive. At the end of the 
dull season, he brings down to the water a canoe, so light 
that it can be borne upon his shoulders, so buoyant that in 
it he can paddle out to the '' banks, '^ which lie two miles 
or ten miles from shore, where in a day he can get as many 
fish as he could catch from off the rocks in a week. 

57. The Canoe-Builder.— The canoe is capital. Its 
owner is a capitalist. He can now take his choice of three 
things. (1) He may go out in his boat and bring home 
supplies of fish which will allow him to marry and rear 
a family in comfort and security, while, with the surplus, 
he hires some of his neighbors to build him a hut, their 
women to weave him blankets and nets, their children to 
bring water from the spring and to wait upon his family. 
(2) He may let out the boat to some one who will be glad to 
get the use of it by paying for it as much fish as one family 
could possibly consume ; and he may himself stay at home 
in complete idleness, basking in the sun or on stormy days 
seeking refuge in his comfortable hut. In other words, he 
may thereafter " live upon his income/' (3) He may let- 
out the canoe, and himself turn to advantage the knowledge 
and the experience acquired by its construction, in making 
more canoes. 

This last is what he is most likely to do. Again and 
again he comes down from the hills to the shore, bringing 
a new canoe, for which scores of fishermen clamorously 
compete. And it is to be noted that the later boats are 
made at a smaller cost of effort and sacrifice. He has found 
out -the groves where the trees are largest and the trunks 
most clear of branches. He has acquired a knack which 



62 POLITICAL ECONOMY, 

makes it almost a pleasure to strip-off vast rolls of tough, 
elastic bark. He no longer spoils the half-completed work 
by a clumsy movement or an ill-directed blow. Moreover, 
his personal toil and pains are reduced to a minimum, 
since, for a small part of the price of a canoe, he hires some 
of his neighbors to carry his burdens and do the heavy 
work. 

58. The Increase of Canoes. — But soon the canoe-builder's 
gains are threatened. Thus far, in the possession of ex- 
ceptional skill and knowledge, he has been a monopolist, 
and has reaped a monopolist's profits. Now, however, 
stimulated by the sight of such great wealth (that is, so 
great a command of other people's labor) acquired by one 
man, others begin to enter the field. As an essential con- 
dition, each must first save and accumulate enough food to 
support him while making his first boat: that is, must 
accumulate a certain amount of capital. This, however, is 
much less difficult than it was in the case of the original 
boat-builder (1) because fish have come, through the mul- 
tiplication of boats, to be much more easily obtained; (2) 
because, with good models before him, the new builder 
has fewer experiments to make, and a far less ingenious 
man can now make a fair boat ; (3) because certainty and 
nearness of success will inspire the labors of ten men, where 
one will be moved to exertion and sacrifice by a prospect 
that is distant and doubtful. Moreover, some of the 
shrewdest of the assistants of the old boat-builder, who 
have watched him at his work and whom he has trusted, 
more and more, to do even the nicer parts of the task, be- 
gin to desert him and to set up for themselves. 

With this increase in the number of builders, the rent of 
boats falls rapidly and the profits of the business are 
greatly reduced. The first boat repaid its cost in a few 
weeks or even days. Indeed, the builder might, if he had 



POLITICAL EGONOMT, 6B 

chosen, haye lived thereafter, so long as the boat lasted, 
in complete idleness, getting as mnch fish as he could eat 
simply by letting-out the boat to others. But now a boat 
only repays its cost in months, perhaps in years. Still the 
men who make boats get a better livelihood than those 
who use them 3 while those who use boats get a better 
livelihood, even after paying a high rent, than those who 
fish off the rocks. 

59. The Parting of the Ways. — Now let us suppose that 
the manufacture of boats has proceeded so far that there 
is one serviceable boat for every four adult males of the 
tribe. At this point, one of two widely divergent courses 
may be adopted, with very important results to the future 
of the community. 

1st. The multiplication of boats goes forward till each 
man is provided with a boat in which he can catch enough 
fish in an hour or two, a day, to keep himself and his 
family, summer and winter, good seasons and bad. The 
creation of capital has at least led to this result : it has 
put famine out of the question. There is always an abun- 
dance of cured fish, even in the meanest hut. All the time 
not occupied by fishing is spent in idleness or sport. 

2d. The manufacture of boats stops at the point where 
fish for the whole tribe can be provided by one-fourth of 
its members. These toil early and late upon the banks ; 
while the remaining members of the tribe work for them, 
in one capacity or another. Only so many boat-builders 
remain as are needed to repair and keep up the exist- 
ing stock of boats. Many of the tribe become house- 
builders, since no one is now willing to live in the paltry 
huts which formerly were thought good enough for any- 
body. Others become domestic servants in the families of 
the -fishermen, of the boat-builders, and of the house- 
builders. Others occupy themselves in making and fash« 



64 POLITICAL ECONOMY. 

ioning trinkets and ornaments, which, in a semi-barbarous 
tribe, are always in great request. 

Soon new wants emerge. 

First, a taste for a diversified diet begins to appear. 
Whereas, formerly no man thought of anything better 
than to have enough of fresh or of dried fish to eat, the 
members of the tribe now crave other kinds of food ; and 
many betake themselves to breaking-up the soil and culti- 
vating vegetables, fruits and grains, which they exchange, 
on favorable terms, for fish, or for the work of the house- 
builder, or for menial services on the part of others. Some 
take to the mountains, and there snare or entrap the 
wild goats, which they bring down to the shore, feeding 
and tending and breeding them, and selling their milk, 
their flesh and their skins for the labor, or the products of 
the labor, of others. 

Secondly, in addition to the taste for a diversified diet, 
there soon begins to be felt a desire for better dress. 
Whereas, formerly no one thought of more than to be 
covered against the cold, the men of the tribe now wish 
to have themselves and their wives and children clad in 
comely and even handsome garments ; and many now 
betake themselves to preparing and fashioning skins and 
animal hair into dress, for their own use and for the use 
of other members of the tribe. 

When we come to speak of the consumption of wealth, 
we shall see what are the effects of these new economic 
desires upon the welfare of the tribe which, so short a 
time ago, lived wholly upon fish caught upon the rocks 
along the shore. 

60. The Law of Capital. — It is not necessary at present 
to trace further the increase of capital. At every step of 
its progress, capital follows one law. It arises solely out of 
saving. It stands always for self-denial and abstinence. 



POUnOAL ECONOMY, 65 

At the first beginning, savings are made slowly and pain- 
fully ; and the first items of capital have a power in ex- 
change (a power, that is, to command the labor of those 
who have not capital) corresponding to the difi&culty with 
which they are secured. The first bow, the first spear, the 
first canoe, the first spade, much as they cost, pay for 
themselves in a few days, when once they have been made. 
Subsequent increments of capital are gained at a constantly 
diminishing sacrifice, and receive a constantly diminishing 
remuneration, until, in the most advanced countries, build- 
ings are erected and machines constructed which only pay 
for themselves in ten, fifteen, or twenty years. 

At every stage, capital releases labor-power which was 
formerly occupied in providing for the wants of the com- 
munity, according to its then prevailing standard of living. 
At every stage, the members of the community make their 
choice, whether they will apply the labor-power, thus re- 
leased, to the production of wealth in other branches, or 
will content themselves with living as well as before, with 
less labor, giving up the newly acquired leisure to idleness 
or sport. 

61. The Three rorms of Capital. — In a rough way, capi- 
tal may be said to exist in three forms : subsistence, tools, 
materials. 

Subsistence. — In the earliest stages, capital consists mainly 
of the means of subsistence for the producer and his 
family. It was not easy, at the beginning, to lay-by enough 
of the game, or the fish, or the fruits, of one season to last 
until the next. For want of such a store of food many a 
tribe perished ; many another was kept in a low, miserable 
condition, unable to shift its seat to more promising locali- 
ties, and continually depleted by famine and disease. 

But when once a tribe, by exceptional good fortune, or 
through prudence and self-control, acquired a reserve suf- 



66 POLItlGAL tJCONOMt, 

ficient for a full yearns subsistence, it became, in a degree, 
master of its conditions. It could shift its seat to better 
hunting or fishing grounds. It could pursue its avoca- 
tions systematically and economically, not, as before, hur- 
riedly and wastefully, under the stress of immediate want. 
Moreover, the physical strength of its members was kept at 
the highest point by regular and sufficient diet. 

An ample yearns subsistence forms the most important 
advance which a people ever make in their progress towards 
industrial prosperity. No subsequent step costs one-half, 
or a tithe, as much. Many peoples never find themselves 
able quite to accomplish this. The people of British India 
can hope for no more, in good years, than to be carried 
through into the next ; while, once in every four or five 
years, a famine following upon a short crop sweeps away 
multitudeg^ through sheer starvation, or through the fevers 
which feed on half-famished populations. Even in Ire- 
land, there was known, half a century ago, a period, two 
or three months long, preceding harvest, which was called 
by the peasantry '^the starving season. ^^ The early G-reek 
poet, Alkman, calls Spring '' the season of short fare." 

Tools. — The next purpose, in logical and generally, also, 
in historical order, for which capital is accumulated is the 
acquisition of tools. We use the word here in its largest 
sense, including all utensils, apparatus and machinery. 
The knife, the bow, the spear, the canoe, the net, are the 
tools of a certain stage of industrial society. The spade, 
the cart, the plough, the distaff, the forge, are the tools of a 
later stage. The loom, the lathe, the printing-press, the 
trip-hammer, the railroad and the ship, are the tools of 
to-day. The buildings which protect machinery from the 
weather, and the shops in which trade and manufactures 
are carried on, are, in this sense, tools. 

The increase in productive power which takes place, as a 



POLITICAL EOONOMT. 67 

community acquires tlie capability of using complicated 
tools and apparatus^ and of applying steam and water-power 
to move machinery, is immense, almost beyond our concep- 
tion. One man with simple tools may do the work of ten 
men, equally strong and equally well fed, who have only 
their hands to work with. Ten men with the wood-work- 
ing, cotton- and wool-working, or metal-working machinery 
of to-day, run by steam or water-power, may easily do the 
work of a thousand, with distaif, chisel, saw and axe. It 
s exceedingly important that the youthful student of eco- 
nomics should early be made familiar with some of the 
applications of tools, apparatus and machinery to manufac- 
tures, in order that he may come to appreciate how large a 
factor in the production of wealth this form of capital is. 
It would be fortunate if vists to large industrial establish- 
ments could be made a regular part of the system of in- 
struction for children. 

Matei'ials. — The third form which capital takes is that 
of materials. The word, as here used, covers all kinds of 
wealth which are devoted to the production of wealth in 
any other way than as subsistence for the laborer, or as tools, 
to increase his power in production. In a primitive state, 
materials play a small part. The bait for the hook, among 
a tribe of fishermen ; the corn saved for seed, in a planting 
community, are the most prominent materials in early 
industry. In a later age, a large part of the accumulated 
wealth of a community exists in this form. 

62. Mutual Relations of the Three Forms of Capital.— We 
have said that the capital of a community may be classed 
under three heads : subsistence, tools, materials. In a 
certain sense, these three may be resolved into one, sub- 
sistence ; as, indeed, all forms of subsistence itself may be 
resolved into one, food. Thus, the first simple tools of 
the barbarous community may be said to be exactly repre- 



68 POLITICAL ECONOMY, 

sented by the subsistence required by the laborers engaged 
in making the tools. The first materials produced by the 
aid of these tools may be said to be represented by the 
subsistence of the laborers using the tools^ added to that of 
the laborers who made the tools. And so of the more 
elaborate tools and machines, and the more various and 
costly materials, of after ages : all may be said to represent 
the subsistence of the laborer while engaged in produc- 
tion. 

Likewise, all the forms of subsistence, viz., food, cloth- 
ing, shelter and fuel, may be reduced to one, food. The 
clothing of the laborer, for example, represents the food 
which he consumed while he was gathering the fibres of the 
wild grasses and weaving them into a blanket. The hut 
represents the food consumed during its erection. The 
fuel represents the food consumed while the laborer was 
gathering fagots in the forest. 

But, while all the three forms of capital, viz., subsistence, 
tools and materials, may thus, in theory, be reduced to sub- 
sistence, and while the four forms of subsistence, itself, 
viz., food, clothing, shelter and fuel, may likewise be 
resolved into food, it yet makes a vast difference to the 
productive power of the community in what proportion its 
capital is actually divided among these different elements. 

63. Fixed and Circulating Capital. — The economists have 
been wont to divide capital into two classes, fixed and 
circulating. The distinction has a certain value, although 
it is not always easy to say into which class a certain body 
of capital would fall. 

Mr. Mill gives the following definitions of these classes : 
'' Capital which exists in any durable shape, and the return 
to which is spread over a period of corresponding duration, 
is called Fixed Capital. '' 

** Capital which fulfils the whole of its office, in the pro 



POLITICAL ECONOMY. 69 

duction in which it is engaged, by a single use, is called 
Circulating Capital/^ 

This distinction may be illustrated as follows. Here is 
a quantity of woollen yarn. Is it fixed or circulating 
capital ? We answer, circulating capital, inasmuch as it 
does its whole work in production by a single use, that is, 
when it is woven, once for all, into cloth. On the other 
hand, the loom on which the yarn was woven, is fixed 
capital, because it exists to weave many and many a lot of 
yarn into cloth ; and the return to the capital invested in it 
is spread over a considerable period of time, several years 
at least. 

Let us take another illustration. Here is a quantity of 
" stores'^ fitted to support a large body of laborers, viz., 
clothes, hats and shoes, meat, bread, groceries, and sc 
forth. Do these constitute fixed or circulating capital ? 
Circulating capital, because they can, as yet, be, so to 
speak, turned into any industrial direction : that is, they 
can be used in subsisting laborers who are engaged in 
making almost any conceivable thing, or class of things. 
Let us suppose that these goods are actually consumed in 
subsisting a gang of laborers engaged in building a bridge, 
or putting up a mill, or making a railroad. Here we 
should have a body of circulating capital turned into a 
Jody of fixed capital, i.e», a bridge, a miller a railroad, 
which would continue to perform its industrial purpose 
throughout many years, perhaps generations, and the 
return to which would be spread over a corresponding 
period. On the other hand, we might have supposed 
these stores to have been consumed by laborers engaged in 
making shovels or axes, which would be worn out by con- 
stant use in a few months, perhaps weeks, and which would 
thus- rightly be called circulating capital. 



70 POLITICAL ECONOMY. 

64. Too Eapid Conversion of Circulating into Fixed 
Capital. — It will appear, from the foregoing, that, while it 
might not always he easy, or even possible, to say in regard 
to a given thing, whether it belonged to fixed or to circu- 
lating capital, there is, yet, a general distinction to be 
drawn between masses of capital, as to the length of time 
over which their usefulness extends. It is, also, true that, 
the more capital partakes of the fixed character, the nearer 
it comes to a single and a specific use ; whereas, on the 
other hand, circulating capital can generally be turned, at 
will, to any one of many industrial purposes. When the 
railroad has been built, it will do nothing but carry goods 
and passengers, on land, by a certain track, from one fixed 
point to another. For any other purpose, it is worthless ; 
whereas the clothes, the hats and shoes, the food, etc., 
might have been used to build the railroad, as they were, 
or to build ships which should carry passengers and freight 
by water, or to put up mills, or to make the looms for the 
mills, or to raise the wool, the cotton, or the flax to be 
woven on the looms, or to do any one of a thousand other 
things. 

If, now, too large a part of the capital of a country 
should, thoughtlessly or under speculative excitement, be 
put into railroads, the results might be very injurious. 
There might not be capital enough left to build the ships 
to carry away the freight which the railroads should bring 
down to the seaports ; there might no-t be capital enough 
left to build the mills, and to fill these with machinery and 
to supply them with materials, and to subsist the weavers 
and spinners who should make the cloth which should 
become freight for the railroads. There might not be 
capital enough left to '^ improve" and to '^ stock " the farms 
of the country, which should furnish grain and cattle for 
transportation. 



POLITICAL ECONOMY, 71 

Instances of the too rapid conversion of circulating 
f apital into one or another form of fixed capital have been 
very frequent. These are especially likely to occur among 
progressive nations. They are always followed by a great 
waste of labor-power, sometimes by a partial paralysis of 
industry; sometimes by what is called a "panic," or a 
" crisis," when the powerful machinery of production goes 
wrong, and its force, instead of being employed in creating 
things useful to men, is turned to its own destruction. 
This danger is a part of the price which highly civilized 
communities have to pay for the great advantages of the 
division of labor, the organization of industry^ the in- 
vention of machinery. 



CHAPTER IX. 

RELATION OF COST OF PRODUCTION TO VALUE. 

65. Kelation of Labor to Value. — We have defined 
wealth ; and, in the last few chapters, we have shown un- 
der what conditions, as to the use of land, labor and capi- 
tal, the production of wealth, that is, the creation of values, 
takes place. We are now in a position to take up, for fur- 
ther analysis, the subject of value. 

It is often said that labor is the only efficient cause of 
value; or, that the values of articles are according to the 
amounts of labor required for their production, severally. 
It ought to be evident, at the first thought, that this can- 
not be strictly true, since, for the production of any arti- 
cle, there is required, as we saw, the use of capital, as well 
as of labor. If, then, of two articles embodying equal 
amounts of labor, one requires the use of a great deal of 
capital, and the other very little, the difficulty of attain- 
ment is not equal in the two cases. Now, since difficulty 
of attainment controls supply, the supply of these two arti- 
cles would soon become unequal, which, assuming that the 
demand for both had previously been the same, would give 
a higher value to the former than to the latter. 

Clearly, if we were to use the term, cost of production, 
to express, not only the amount of labor, but also the 
amount of capital-power, going into any article, it would 
be much nearer the truth to say that cost of production de- 
termines values, than to say that labor determines values. 

7a 



POLITICAL ECONOMY, 73 

66. Cost of Production.— But does the cost of production, 
even as so constituted, determine values ? As a matter of 
fact, value is so often almost the same as the cost of pro- 
duction, and value is so apt to change as the cost of pro- 
duction changes, the one rising and falling with the other, 
that it is very natural to speak of cost of production as 
governing value. And, in a general way, this is true; yet it 
is easy to show that it is not always the case. 

For example, we might suppose that a great improve- 
ment had taken place in the methods of making cotton or 
woollen goods of a certain description, or that mines of coal 
or iron, far richer and more convenient for working than 
any other before known, had been discovered. In such 
events, would the cotton cloth or woollen goods, or the coal 
or iron, now in the market, have their value governed, in 
any degree, by what it cost to produce them ? JSTot at all. 
These articles would at once fall to a new value, corre- 
sponding to the new cost of producing articles like them. 
ISTo man would pay four dollars a ton for coal, simply be- 
cause that coal had cost four dollars a ton, if coal just as 
good could now be brought in from the m'ines at three 
dollars. No man would pay one dollar a yard for a certain 
kind of woollen cloth, if the new looms could turn out cloth, 
in every way as good, for eighty cents. 

67. Cost of Reproduction.— Is it not, then, the cost of 
reproduction, rather than the cost of production which de- 
termines value? As between the two, is it not nearer the 
truth to say that it is not what goods did cost, that deter- 
mines their value, but what they would cost, at the present 
time ? Clearly this is so. No man is going to pay any- 
thing for an article, merely because that article did require 
for its production a certain amount of labor and capital. 
Speaking generally, what he will give for it will be closely 
related to what it now costs to produce this article. 



74 POLITICAL ECONOMY. 

But is it, even, the cost of reproduction, i.e., of keeping 
up the supply, which determines the value of articles ? No. 
While it is generally true that value is close to cost of re- 
production, the two are often far apart. Take, for exam- 
ple, the old looms on which the woollen goods, to which we 
just now referred, were woven. Let us say that these cost, 
when they were first made, $300, apiece. That, however, 
as we saw, is no reason now why they should bring $300. 
Looms of the same pattern could, perhaps, now be made 
for 1250. Will these looms, therefore, bring $250 ? l^ot 
at all. New looms, of a better pattern, having been in- 
vented, perhaps manufacturers could not afford to use the 
old looms unless tliey were to obtain them at a very low 
price, say $100. Possibly the new looms might be found so 
much more efficient that no manufacturer could afford to 
use the old looms, at any price ; and these may therefore 
bring only their value as old iron. Here we have a case 
where an article will sell neither for its cost of production 
nor for the cost of its reproduction. 

Again, here is a house, in a once fashionable street, which, 
twenty years ago, cost $25,000. Yet the house, in fact, 
could not be sold for more than $15,000 or $17,000. The 
foregoing are not strange, single cases. A very large part 
of all the articles in the world, which have value at all, 
would not sell for what it would cost to produce equally 
good articles at the present time. 

What, then, is the trouble with the statement so fre- 
quently made, that cost of production, or, at any rate, the 
cost of reproduction, governs value? This is the trouble. 
Cost of production is only another term for difficulty of 
attainment. Now, we saw (Par. 15) that two elements 
enter into value : First, difficulty of attainment, which 
controls supply ; second, utility, which creates demand. 
To assert^ then, that cost of production^ or cost of reprg* 



POLITICAL ECONOMY. 75 

duction, determines value, is to say that value is composed 
of one of these elements only, and not of both. 

While the distinction we have drawn between the cost 
of production and the cost of reproduction is one which 
needs to be kept always in mind by the student of polit- 
ical economy, it is much more convenient to use the for- 
mer term ; and this we shall accordingly do, throughout 
the remainder of this treatise. But the reader is asked 
to remember that, when we speak of cost of production, in 
respect to any article in the market, what we have ref- 
erence to is, not the past cost of producing that identical 
article, but the present or immediately prospective cost of 
producing an article so nearly like it that, for commercial 
purposes, there will be no difference between them. Past 
labor, labor already spent, has no control over, or influence 
upon, value. It is only present labor, or prospective labor, 
which, in any way, governs value. How far it does this, 
how far it fails in doing this, we shall see under our next 
title. 

68. Relation of Market Value to Normal Value. — While, 
for reasons stated in the last paragraph, it is incorrect to 
say that the cost of production determines actual value — 
which we shall hereafter call "market value" — we must 
always keep the idea of the cost of production clearly in 
mind, when speaking of the exchange of wealth, since it is 
this which determines " normal value," a phrase we are 
now to explain. 

Market value is, as has been abundantly stated and illus- 
trated, governed solely by supply and demand. Normal 
value may be represented by a line [though, by no means, 
a straight line] which market value always tends to ap- 
proach, or to which it always tends to return after any de- 
parture therefrom. If the market value of any article is, 
at any time, below the cost of its production, some of those 



76 POLITICAL BGONOMT. 

who have been engaged in producing that article will prob- 
ably soon cease to produce it at all ; others will certainly 
produce less of it than before. The supply being, by these 
means, reduced,the market value will, if the demand remains 
the same, rise toward, or to, the normal value. If, on the 
other hand, the market value is above the cost of produc- 
tion, some, perhaps all, who have been producing this article 
will produce more of it, perhaps much more of it. It is 
even possible that some persons who have not been pre- 
viously engaged in producing this article, may now under- 
take to do so. The supply being, by these means, in- 
creased, market value will turn downward, toward, or to, 
the normal value. 

Now, just as changes in demand, due to the tastes or the 
wants of the community, or changes in supply which can- 
not be foreseen, due to accidents, to fires, to floods, to short 
crops and a variety of other causes, are continually drawing 
market value away from the normal line, so the self-interest 
of producers is continually working, in the ways above de- 
scribed, to bring market value back to the normal line. 
But the tenden3y of market value to go away and stay 
away from the normal line is greater in the case of some 
commodities than in the case of others. With some arti- 
cles, that tendency is very strong and very persistent. 
With other articles there are incessant slight fluctuations, 
now on the under, now on the upper, side of the line which 
represents the cost of production. It is important that we 
should dwell here, for a moment, upon the chief causes 
which tend to bring about and to maintain the divergence 
of market from normal value. 

69. Causes which affect Demand. — In the first place, 
we have the causes which affect demand. There are large 
classes of articles the need of which is very steady and 
constant. People always want these articles, and gen- 



POLITICAL ECONOMY, 77 

erally want about so much of them. If, from poverty, a 
person had to pinch himself at any point, he would give up 
almost anything sooner than any part of what he has been 
accustomed to have of these articles. The demand for 
them, consequently, remains very steady, from week to 
week and from year to year, perhaps through terms of 
years. At the other end of the scale, there are many 
classes of articles, the demand for which is very irregular 
and uncertain. In respect to some of them, fashion enters, 
requiring incessant changes in form and style and color. 
That which was the best, last year, is scarcely worth having, 
this year. Sometimes the changes of fashion go so far as 
to throw an article very nearly or altogether out of use. 

There are still other large classes of articles, regarding 
which the changes of demand are not due to fashion, but 
to the varying means of those who purchase them. If 
people at any time do without them, it is not because they 
no longer desire them, but from what is called '^ want of 
money.^^ These are articles which people give up when 
they have to give up anything. The desire for them re- 
mains the same ; but the demand, economically speaking, 
diminishes or disappears altogether. 

Causes which affect Supply. 

Let us now consider the causes which tend to make 
market value differ from normal value, through affecting 
the supply of articles. There are many of these ;, but we 
can deal only with the most important. 

70. (I) The Existence of a Stock. — Suppose there were an 
article which was found in a raw state, near at hand, ready 
to be cut down, or dug out, or merely brought to market, 
as required, at one season just as well as at another. In 
such a case, market value would never go far away, or long 



78 POLITICAL EGONOMT. 

stay away, from normal value. If demand fell off, pro- 
duction would fall off accordingly and promptly. About 
as much as was wanted would be brought in, day by day ; 
and every day^s product would have an exchange-power 
close to its cost. 

The conditions we have just described are realized in the 
case of few commodities. With most it is necessary to 
have a stock, larger or smaller, on hand, at all times ; and 
the work of production cannot go on uniformly throughout 
the year. In some cases, articles can be grown, or others 
brought to market, only in a single season of the year. 
Maple sugar is produced within a few weeks of alternate 
thawing and freezing, in the spring. Wood for fuel is 
generally brought out of the forest when the snow is on the 
ground, as it is easier to haul it on sleds than in carts. 
On many rivers, logs can only be floated down to the saw- 
mills, perhaps hundreds of miles below, during a very 
short season, when the streams are swollen by the melting 
of the snows. Ice can only be gotten out in the depth of 
winter. For the production of some articles the heat of 
mid-summer is required. 

Now, if all the year's supply of any article has to be pro- 
duced or brought to market in one part of the year, the 
producers can only guess, and perhaps guess vaguely, what 
the demand will be five or ten months later. In the case 
of such industries, the supply cannot be readily checked, if 
the demand falls off ; or be quickly increased, should fhe 
demand prove greater than was anticipated. 

In the case of some important classes of articles, the 
amount of production must be determined on, not months, 
but years in advance of the demand. In order that there 
may be bread, it is only necessary that the baker shall have 
time to heat his ovens. In order that there may be flour 
it is only necessary that the miller should have a week's 



POLITICAL MCONOMT. W 

notice. But in order that there should be wheat from 
which to make the flour, the farmer must have decided, the 
year before, how much land he would plant in wheat ; the 
soil must have been broken up, the seed sown, and the 
growing grain cultivated through the summer. In order 
that there may be a sufficient supply of wool, the sheep- 
raiser must have begun his work two or three years ago. 
In order that there may be horses fit for draft or for the 
cavalry, four or five years, at least, are required. 

71. (II) Substitution of One Article for Another in Use. 
— A second cause which influences the divergence of market 
value from normal value, is found in the varying degrees in 
which different articles can be substituted for others, in use, 
should occasion arise. There are some articles which have 
almost no substitutes. If the person cannot get the pre- 
cise thing he wants, he knows of nothing which would take 
its place. In the case of other articles, there are many pos- 
sible substitutes, some of which are nearly as good, while 
some will barely answer the purpose. If, for example, beef 
is very sca.rce, people can use other kinds of meat, without 
any great loss of physical benefit or pleasure. If wheat is 
scarce, resort will be had increasingly to other kinds of 
grain. And this substitution will begin at once, and will 
be made almost unconsciously. People who have been us- 
ing wheat five days in the week and Indian corn, or rye, 
two days, will now use Indian corn, or rye, three days in 
the week, and wheat only four days. In this way the bal- 
ance will be brought around again, or, at least, wheat will 
be kept from rising as high as it otherwise would. 

On the other hand, for most of the uses of iron there is 
nothing that can be substituted for that metal, except at 
very much greater cost. Copper is worth, say, twelve 
times as much as iron ; aluminum, twenty times as much as 
copper. Consequently, if the supply of iron proves defi- 



80 POLITICAL ECONOMY, 

cient, the value of it may rise higher and higher, through 
a term of years, without any considerable substitution of 
other articles. There will, of course, be less iron used, 
since people will put stone and brick arches and wooden 
beams into bridges and houses, where, otherwise, they 
would have used iron. But, in spite of this, there will still 
be so much need of iron, for a multitude of purposes, that 
the value of the stock might be doubled before a new sup- 
ply could be brought in. 

72. (Ill) Organization of Industry. — We have elsewhere 
shown how the organization of industry increases the possi- 
ble production of wealth. The same cause, however, tends to 
put apart, and to keep apart, market value and normal 
value. Where a community has been organized into a great 
number of trades and professions, each person being highly 
expert in his own particular business, or craft, but knowing 
little or nothing of others, it is far less easy to increase pro- 
duction if the supply be deficient, or to check production 
if the supply be in excess, than in a community where arts 
and trades are few and simple, and each man is more capa- 
ble of turning himself, should occasion arise, to some other 
kind of work. Self-interest will still enter, to check pro- 
duction or to increase it, according to the " state of the 
market," i.e., according to demand ; but this will be done 
much less promptly and effectively, for the reason which 
has been stated. Men will go on working in the business 
to which they are accustomed, long after the remuneration 
they receive has, through a decline in demand, fallen below 
the remuneration of equal exertions and sacrifices in other 
branches and industries. 

73. (IV) Investment of Capital — Existence of Plant. — In 
the same way, the need of extensive buildings, fixtures, ma- 
chinery and apparatus, for the production of certain classes 
of commodities, may prevent a rapid increase in the supply 



POLITICAL ECONOMY. 81 

bf those commodities, to correspond to a rapid increase of 
demand, should such take place. Thus it happens that 
market value, in these lines, may remain a long while above 
normal value, in spite of all which the principle of self- 
interest can do towards bringing the two kinds of value 
together. 

On the other hand, the fact that a large body of so- 
called " plant," i.e., structures, fixtures, etc., suited to the 
production of certain goods and of no others, is in exist- 
ence, may retard the movement of market values upward 
to the normal line, in cases where a great falling-off in de- 
mand has lowered the value of such goods below the cost 
of production. Inasmuch as the plant is there, and can be 
used for nothing else, manufacturers may go on producing, 
even though they get almost nothing for the use of the 
plant, after paying the wages of labor and the cost of mate- 
rials. 

It may even happen that the existence of plant, in a 
large amount, constitutes a sort of necessity to produce. 
Thus, in the case of work being stopped in a mine, the 
shafts and galleries might in a few weeks be filled with 
water, which it would require much time and great expense 
to pump out when work should be resumed. It might, 
therefore, happen that a mine owner, rather than allow his 
mines to fill up, would go on, for a while, producing at a 
loss, that is, not even getting back all the wages paid and 
all the materials consumed. In the same way, it not un- 
frequently happens that an iron manufacturer for a while 
produces at a loss, rather than allow his furnaces to " go 
out of blast. ^^ 

The degree to which the foregoing cause operates differs 
widely in different industries. In some, the amount of 
plant required for a certain product is very small ; in others 
it is very large. Even among those industries where the 



82 POUTIGAL ECONOMY, 

plant is large, there is a great difference as to the length oi 
time required to extend it ; as to the amount of " wear and 
tear " which is involved in its regular daily use ; and as to 
the injury likely to result from a stoppage of the works. 

74. (V) Liability to Deterioration of Product. — Still an- 
other cause, which, in the case of many articles, has the effect 
to exaggerate deviations of market value from the normal 
line, is found in a liability, greater or less, to deterioration 
of the product. Thus, in a fish market, the price of a fish 
might have been a shilling when the market opened, eight- 
pence at ten o'clock, sixpence by noon, while in the after- 
noon one could have it almost on his own terms. Straw- 
berries and peaches are often sold, at night, at one-half or 
one-third of the morning price. The necessity of storage, 
in the case of a postponed sale, has often the same influence 
on the price of a commodity as liability to deterioration* 
The dealer, not having the facilities for storing his stock, 
may let it go at a very low price, rather than keep it over. 

75. (VI) Customary Price. — In respect to certain com- 
modities, public opinion dictates that there shall be a cer- 
tain, stated, well-known price. Thus, people would not 
tolerate varying and uncertain prices of admission to places 
of public amusement ; varying or uncertain tolls over 
bridges, or fares in public conveyances ; varying and un- 
certain fees for the performance of necessary services. To 
have to haggle and bargain at the door of a theatre, over 
the price of admission ; on the brink of a river, as to the 
sum to be paid for a cast across the stream ; in the sick- 
room, about the fee for a prescription, or the cost of the 
medicine that should save life or relieve pain, these things 
would be intolerable. Hence, public opinion generally 
establishes a price, for all such occasions, which is irrespec- 
tive alike of the service rendered to the individual buyer, 
and of the cost, to the seller, of rendering that service in 



POLITICAL EG0N0M7. 83 

the particular case. For instance, a traveller would give a 
large sum of money, rather than pass the night in a storm 
on a river bank; yet he gets a cast across, at the customary 
price, be that twopence or a shilling. On the other hand, 
the ferryman or boatman makes a much greater sacrifice in 
taking the passenger over at night, in a storm, than if it 
were in the afternoon of a pleasant day; yet public opinion 
requires him to subject himself to the greater sacrifice, 
without any higher charge. 

Where public opinion cannot be trusted to establish a 
customary price, in cases like the above, the law generally 
enters and fixes the rate. Of course, the price paid must 
be enough, on the whole, to make it worth while to keep 
up the service, whether of the apothecary, the physician, 
the ferryman, the actor or the opera singer. But the price 
to be paid is made independent of the wealth or the pov- 
erty, the knowledge or the ignorance, the little or the great 
need, of the individuals purchasing. 

76. (VII) Habit and Mental Inertia.— The last of the 
causes which we shall mention, as resisting the effort of 
market value to return to the normal line, is found in the 
force of habit and in the lack of what is called " initiative,'* 
on the part of many or most persons. 

No human being ever escapes altogether from the force 
of habit. It is always easier to do what we have done be- 
fore, than to do what we have never done; to do what we 
have done twice, than to do what we have done only once ; 
to do what we have done often, than to do what we have 
done seldom. The degrees, however, in which men are 
bound by habit, or in which they are indisposed to do 
what is not familiar to them, differ widely. A capability 
of taking the initiative in action, mental courage and ac- 
tivity, freedom from, apprehension and superstition, a 
readiness to meet new conditions, and perhaps even a pleas* 



84 POLITICAL ECONOMT. 

ure in encountering risks and odds, are among the frnits 
of education and experience. They become an inheritance 
in families, and even a characteristic of nations and races. 

The effects of habit npon values are very important. 
Habit always, in some degree, often in a great degree, 
resists the economic tendency to a new price. This effect 
is seen at its height in wages, the price of labor. A day's 
wages often remain the same through months, sometimes 
through years, although, in fact, the utility of the service 
rendered to the employer changes frequently in that time. 

Over the prices of goods habit exerts an influence no less 
real, though not equally powerful. It often keeps prices 
steady, against an economic reason for change ; and, even 
when movement takes place, it begins later ^id ceasef 
earlier, by means of this constant resistance. 



CHAPTER X. 

PRODUCTION AT THE GKEATEST DISADVANTAGE 

77. delation of Cost of Production to Value.— In the 

last chapter, we undertook to reach the relation between 
Value and the Cost of Production. What we found was 
that Cost of Production determines Normal Value, which 
actual or Market Value continually tends to approach, 
though frequently drawn away, and often kept long away, 
by various causes, affecting supply, or demand, or both. 

We have now to take another step in the theory of value. 
We have thus far assumed that all parts of the required 
production take place under conditions of equal advantage 
as to cost, so that the normal value of any kind of goods 
would be the cost of producing any part of the supply. 
But, in fact, of the four grand agents of production, land, 
labor, capital and business ability (see par. 55), two, the first 
and the last named, have, by force of nature, a wide range 
as to productive power, from which it results that different 
portions of the required supply of a certain kind of goods 
may differ widely as to their several costs of production. 

78. Equality of Conditions as to Labor and Capital.— To 
illustrate this rudely, let us suppose a certain district to be 
divided into a hundred large farms, each farmer employ- 
ing fifty men, and having at command 110,000 of capital. 
Now, we may, for the purposes of reasoning, assume the 
body of laborers and the body of capital upon any one farm 
tp be the exact equivalents of the corresponding bodies 

as 



86 POLITICAL ECONOMY, 

upon any other farm. Of course this might not, probably 
would not, be literally the case, so far as the bodies of 
laborers are concerned. One set of laborers might, as it 
happened, be a little poorer than those employed upon a 
neighboring farm. But there would be nothing in the 
nature of the case why an inferior set of workmen should 
be found upon one farm more than upon another. This 
would be purely one of those accidents which, for the pur- 
poses of reasoning, we are bound to set aside. 

As to the capital, we have no need to offer any qualification 
of our assumption that the several sums of 110,000 are the 
precise equivalents of each other. There would be just as 
many ploughs and horses, just as many carts and oxen, 
just as much food and clothing for the subsistence of la- 
borers, just as much money for wages, in one 110,000, as in 
any other. 

79. Inequality of Conditions as to Land. — But if, now, 
we suppose these equal bodies of labor and capital to be 
applied to the raising of crops, shall we find that the con- 
ditions of production continue equal ? By no means. We 
shall find differences, very considerable differences : and 
these, not occurring through accidents which we may dis- 
regard, as having nothing to do with the reason of the 
case ; but differences due; to the very nature of the subject ; 
differences which cause some portions of the supply to be 
produced at a great advantage, while other portions are 
produced at a great disadvantage. It is to finding out 
how these differences in the cost of production affect nor- 
mal value, that we devote the present chapter. 

What is the cause of the differences which we have indi- 
cated as certain to arise whenever equal bodies of labor and 
capital are applied to the raising of crops ? That origin is 
two-fold. In part, it is found in the varying productive- 
ness of the soil. Those variations^ if we contemplate any 



POLITIC AL £!COJ^OMlr. W 

wide field of industry, are not small, but large ; they are 
not accidental, but are in the nature of the case. The 
fifty laborers working upon, say, farm No. 31, may be as- 
sumed to be the equivalent of the fifty laborers working 
upon farm No. 5, or upon farm No. 64 ; but farm No. 31 
will only yield 15 bushels of wheat, per acre, while No. 5 
will yield 18 bushels, and farm No. 64 will yield 24 bushels. 
These differences in product do not come from the laborers ; 
they come from the soil ; and such differences as we have 
indicated above are not extreme. There are farms, among 
the hundred, which will yield less than 15 bushels ; and 
there are others which will yield more than 24 bushels. 

80. Inequality of Conditions as to Business Ability. — 
Then, again, were we to suppose that there were certain 
farms, absolutely equal in their productive power, we might 
be assured that there would be found differences, very con- 
siderable differences, among the farmers occupying and cul- 
tivating them, as to the ability to control and direct bodies 
of labor and of capital for the production of wealth : dif- 
ferences as to the degree of care and foresight, of energy and 
economy, of commercial prudence and administrative skill. 
Such differences in the farmers would come out in the 
crops, were the lands the same, the laborers the same, the 
capital the same. 

It is true that the abler farmers would tend, little by 
little, to bring into their employment the best laborers ; but 
it is, also, true that, with the very same laborers, they would 
get a better, some of them a much better, result than the 
less efiBcient farmers. It is true that accidents and mis- 
fortunes, of one kind or another, would come to all the 
farmers in the county — floods or droughts or fires or ver- 
min or rust or mildew, or what not ; but it is, also, true, 
that, in the first place, fewer of these calamities would, 
in the long run, fall upon the far-seeing and painstaking 



88 POLITICAL ECONOMY, 

farmer than upon his less diligent and prudent neighbor \ 
secondly, that those which did come would fall with less 
force ; and, thirdly, that the resulting mischief would be 
more quickly repaired and remedied in the former than in 
the latter case. 

81. Production at the Greatest Disadvantage determines 
Normal Value. — Now, with differences existing as to the 
conditions of production, both as regards the fertility of 
the land and as regards the degree of business ability, what 
shall determine normal value ? I answer : 

The kormal value of any kin^d of goods is deter- 
mined BY THE COST OF PRODUCTION" OF THAT LAST CON- 
SIDERABLE PORTION OF THE NECESSARY SUPPLY WHICH IS 
PRODUCED AT THE GREATEST DISADVANTAGE. 

Let US proceed in this matter by successive illustrations. 
Wheat is raised upon some lands, in England, at a cost not 
exceeding two shillings, a bushel. Is this wheat, there- 
fore, sold at two shillings ? Does it even tend to be sold 
at that price? Is there any economic force, whatever, 
which operates to compel, or to induce, the farmer to sell 
that wheat at that price, or somewhere near it ? All these 
questions are to be answered by a simple no. The cost of 
production in this case has absolutely no connection what- 
ever with the price. Did anybody ever, in these days, 
hear of good wheat being sold in Mark Lane, London, at 
two shillings a bushel ? Yet there are lots of it produced 
at a cost below two shillings. 

Again, there is a vast extent of lands on which wheat is 
raised at the cost of three shillings a bushel. Is this wheat 
sold at three shillings, or does it tend to be ? Again, no. 
Still further, there are lands on which wheat is raised at 
the cost of four shillings, and others, still, on which it is 
raised at the cost of five shillings ; but the product is not 
sold at a price equal to the cost of production, or in any 



POLITICAL WCKOMT. 69 

way corresponding to it. What, then, does fix the price of 
what we may call the two-shilling wheat, the three-shilling 
wheat, the four-shilling wheat, the five-shilling wheat ? I 
answer, it is the cost of raising " that last considera'ble 'por- 
tion of the necessary supply which is produced at the great- 
est disadvantage,^' Let us suppose that there are ten mil- 
lion bushels of the two-shilling wheat, twenty million bush- 
els of the three-shilling wheat, thirty million bushels of the 
four-shilling wheat, forty million bushels of the five-shilling 
wheat. We should then have one hundred million bushels 
produced at the cost of five shillings, or less. But let it be 
supposed that the demand for wheat exceeds, and tends 
considerably to exceed, this amount. Just how much the 
demand shall exceed a hundred million bushels, will, of 
course^ depend upon the price. Let us suppose, for in- 
stance, that there are enough people who want wheat, 
and who want enough wheat, and who want wheat badly 
enough, to make up an effective demand for a hundred and 
thirty million bushels, at not exceeding six shillings. If 
then, the next grade of land, that, viz., which will yield 
wheat at the cost of six shillings, were extensive enough to 
produce, if required, fifty million bushels, we should have 
the normal price of wheat, on these conditions, fixed at six 
shillmgs, a bushel. This price would just repay the cost of 
cultivation on the last grade of soils, yielding no profit.* 
That price would equally be paid for all other portions of 
the supply of wheat, yielding profits which would repre- 
sent the difference between the cost and the price. To 
whom this profit shall go, is a question which it would be 
premature to raise at this point. Only a portion .)f the six- 

*I use the word, profit, for the present, in its generic sense. 
SucTi profit, in the case of land, will hereafter be specifically called 
rent. 



90 POLITICAL ECONOMY, 

shilling land would be cultivated. No part of the se?en- 
shilling, or the eight-shilling land would be brought into 
use. 

82. Take Silver Mining as an Illustration. — Silver is pro- 
duced, in not a few mines, at the cost of twenty-five cents, 
an ounce, or less ; but it is not, on that account, sold for 
twenty-five cents. If the demand for silver, for use as 
money or in the arts, be sufficient to fix the price at one 
dollar, silver will be produced at what we may call the 
twenty-five cent mines, the fifty-cent mines, the seventy- 
five-cent mines and the-one dollar mines ; but it will all be 
sold at the same price, namely, one dollar. The last class 
of mines will yield no profit, but only pay for the working; 
while the other classes of mines will yield a profit on their 
product of, respectively, seventy-five, fifty and twenty-five 
cents, an ounce. Nobody thinks of offering Mr. Mackey 
or Mr. Haggin twenty-five cents, an ounce, for his silver, 
merely because it cost only that sum. All the silver pro- 
duced is sold at the same price in the same market. That 
price is fixed by the cost of production from the mines the 
least rich in their deposits^ or the most expensive to operate, 
which the existing demand requires to he ivorTced in order to 
secure the necessary supply. The demand being no greater 
than it is, the dollar-and-a-quarter mines and the dollar- 
and-a-half mines, of which there are a great number, will not 
be worked, any more than will be the two-dollar, the three- 
dollar and the four-dollar mines, which, between them, 
contain an immense amount of silver^ very much scattered. 

In like manner, we might go over the whole ground of 
the articles known to the market, finding, in every case, 
that normal price is fixed by the habitual average cost of 
producing "that last considerable portion of the supply 
which is produced at the greatest disadvantage ;" while, in 
every case, likewise, all other portions of the supply are 



POLITICAL ECONOMY. 91 

sold at the same price, whatever their individual cost of 
production, yielding a profit, the disposition of which we 
shall have occasion to investigate when we reach the sub- 
ject of the Distribution of Wealth. 

83. Varying Productiveness as to Business Ability. — We 
have thus far shown the effect, upon normal value, of vary- 
ing productiveness in the lands under cultivation for the 
supply of the market. We are now to consider the effect, 
upon normal value, of varying productiveness in the per- 
sons engaged in the direction and control of labor and 
capital. 

In doing so, let us proceed, as before, by illustration. 
Let us take the case of the manufacture of cotton goods. 

We may suppose that the present price of the staple is 
ten cents, which, throwing transportation out of sight, 
represents the cost of its production at the greatest disad- 
vantage, that is, on the least fertile lands devoted to this 
crop. Portions of the cotton may, indeed, have paid a 
profit (rent) of one cent, or two cents, or three, or four, a 
pound, to the owners of rich lands ; but of this the 
manufacturers of cotton goods know nothing, and for this 
they care nothing. The only fact with which they, as 
manufacturers, are concerned, is that, the demand for cot- 
ton being what it is, cultivation has, to satisfy that demand, 
been carried downward to a certain grade of soils, cost of 
production upon which has determined the price, ten cents, 
which they find ruling in the market. This price all manu- 
facturers, capable or incapable, are equally obliged to pay, 
so that all start on an equality as regards the cost of their 
materials. In the cost, to them, of the labor requisite to 
production, they are also substantially on an equality. We 
have, also, a right to assume them to stand on the same 
footing as regards the loan of capital and the price to be 
paid for its use, namely, interest. 



92 POLITICAL ECONOMY. 

If, now, we contemplate a body of manufacturers, fifty, 
or a hundred, in number, supplying the same market, what 
is to determine the normal price of that kind of goods ? 
According to the principle we have already ascertained, it 
must be the cost of production of that last considerable 
portion of the necessary supply which is produced at the 
greatest disadvantage. But how should there be any such 
thing as advantage or disadvantage, in respect to produc- 
tion, since all stand on a level as regards the prices of ma- 
terials, the rate of interest, the wages of labor ? I answer, 
differences will be developed, from the very earliest begin- 
nings, in respect to the degree of business ability with 
which these forces will, by these manufacturers, be applied 
to these materials, for the production of this kind of 
wealth ; and those differences will be large, and, except for 
the operation of accident or fraud, will be measurably con- 
stant. In any body of twenty, fifty, or one hundred manu- 
facturers, there will be some who will produce more ; others 
who will produce much more ; still others who will produce 
very much more, of wealth, in the form of cotton goods, 
than certain members of that body who employ the same 
amount of labor and capital. 

84. How one Manufacturer Produces More of Values 
than Another. — This excess of values produced by certain 
manufacturers over those produced by others, less success- 
ful, in the same line of business, may be brought about in 
many and various ways. It may be through greater care 
of materials, from the day of purchase, through the time of 
storage and through all the successive processes of produc- 
tion, down to the day the goods are sold. It may be, by 
more of organizing and energizing power, enabling certain 
manufacturers to select always the right man for the place; 
to correlate all the parts of the service and subordinate 
everything to the supreme end in view ; to create and 



POLITICAL ECONOMY. 93 

maintain throughout their entire force a spirit of earnest, 
enthusiastic work. It may be, through ingenuity in de- 
vising expedients and meeting exigencies of a mechanical 
nature. It may be, through skill and taste in producing 
better designs or a higher finish of goods. It may be, 
through a sound judgment regarding the present and pros- 
pective demands of the market, and a sort of prescience in 
anticipating great and sudden changes of condition. It 
may be through an instinctive sense of character, govern- 
ing the decision, to what persons goods shall be sold, and 
on what times and terms of credit. By one, or several, or 
all combined, of these and other ways of reaching the result 
in view, viz., the largest possible creation of values by the 
use of a given amount of labor and of capital, it will inevi- 
tably come about that the members of any considerable 
body of producers in the same line, under external condi- 
tions substantially the same, will be stretched out over a 
very wide scale. 

85. Production by the Least Competent Employers Deter- 
mines Normal Value. — In such a state of things, what con- 
stitutes production at the greatest disadvantage ? I answer, 
it is production by the least competent employers. It is 
the cost of their production, therefore, which determines 
the normal value of that kind of goods, at that time, for 
that market. The demand is such, by the very statement 
of the case, as to require production by all these manufac- 
turers : otherwise the least successful of them would already 
have ceased, or would speedily cease, to produce. Since 
the demand, however, is sufficient to keep them all pro- 
ducing, that demand must determine a price for those 
goods which will repay the cost of production at the great- 
est disadvantage, that is, by the least competent producers. 

Demand will not, however, under ordinary conditions, 
that is, normally (which is the state of which we are speak- 



04 POLITIOAL EG0N0M7. 

ing] fix a price which will more than repay this cost of pro- 
duction at the greatest disadvantage. Exceptional circum- 
stances may indeed, arise, under which demand will be so 
highly stimulated as to raise the price to a point where all 
producers, highest and lowest, shall, for the time, obtain, 
by the sale of their goods, a surplus over the cost of pro- 
duction, that is, profits. If, however, this state of things 
lasts long, or promises to become permanent, other persons 
will be tempted to come into the business, or those already 
in the business will as quickly as possible enlarge their 
plant, to take advantage of the situation. There will thus 
be a constant tendency [which is what we mean when we 
speak of what is normal, in production or trade], to bring 
value down to the cost of production at the greatest disad- 
vantage, that is, production by the least competent pro- 
ducers actually contributing to the supply ol the market. 



CHAPTER XL 

MONEY: THE MEDIUM OF EXCHANGE. 

86. Difficulties of Barter. — ^We have thus far spoken of 
the exchange of wealth, as if the different producers ex- 
changed their products directly with each other : carpenters, 
blacksmiths, masons, tailors, now working for each other, 
now working for fishermen, hunters, or tillers of the soil, 
and receiving from them, in return, fish, flesh, grain, or 
fruits. Such a direct exchange of services or of products 
does, indeed, take place in a primitive community ; and, 
even in the most advanced communities, it continues to take 
place to a certain extent. But this direct exchange, which 
we call barter, or truck, is effected with much difficulty, 
even in primitive communities ; and that difficulty increases 
very rapidly as occupations become multiplied and as the 
services or products to be exchanged increase in variety. 

87. Double Coincidence of Wants and of Possessions. — The 
difficulty referred to is the difficulty of securing a double 
coincidence of wants and of possessions. The phrase just 
used is a long one ; but the thing itself is easily understood. 
Where the division of labor has gone a great way, a pro* 
ducer will wish to consume, or personally enjoy, only a 
part, and that a very small part, of what he himself pro- 
duces. The rest of his product he expects to see consumed 
by others, from whom, in turn, he looks to receive the 
particular things which he desires to consume or en- 
joy. So far, the conditions of ^n exchange are met. But 



96 POLITICAL ECONOMY, 

when any producer actually goes about to make those ex- 
changes, he may have to spend a great deal of time and 
walk a great way, in order to find a person who loth has 
what he wants, and wants what he has. He may find 
many who have what he wants, but do not want what he 
has, and many more persons who want what he has, but 
who have not, also, that which he wants, before he will find 
one person between whom and himself exists that *' double 
coincidence of wants and of possessions'' of which we 
spoke. This difficulty might often be found so great as to 
compel a man to expend more time and effort in exchang- 
ing his product than in making it. 

88. Difficulty of "Making Change." — Another obstacle 
which is encountered in direct exchange, or barter, in the 
case of many articles, arises from the difficulty, or even the 
impossibility, of so dividing products as to make a fair ex- 
change. If three hats be worth five bushels of wheat, an 
exchange will be easy enough, provided the man who has 
hats wants wheat, and the man who has wheat wants a hat. 
A hat will be given for one bushel, two pecks and about 
five quarts of wheat; and both parties will be satisfied. 
But if three hats are worth four pairs of shoes, an exchange 
will be impossible, unless one party takes more hats, and 
the other party more shoes, than he needs. This difficulty, 
again, would often go so far as to render direct exchange 
impossible. 

89. Need of a Common Denominator of Values. — ^A third 
obstacle to barter would be found in the difficulty which 
producers would experience in finding out for how much 
of the various products of others a certain quantity of their 
own product ought to exchange. 

This obstacle to barter is not a fanciful one. In a com- 
munity where direct exchange was the rule, each article 
in the market would have to be quoted in terms of every 



POLITICAL ECONOMY. 97 

other,* or, else, every producer would be obliged to work out 
a long "rule of three" sum, to tell for how much of his 
own product a certain amount of any other man's product 
ought to exchange. 

Let us take a simple case, a very simple case, an almost 
impossibly simple case. Let it be supposed that a man, 
who wishes to exchange sugar for tacks, finds out, by in- 
quiry in the market, that one pound of tobacco has that 
day been exchanged for four pounds of flour ; one pound 
of flour for half a pound of tacks ; one pound of sugar for 
two pounds of rice ; three pounds of rice for one pound of 
tobacco. At what rate, then, shall he exchange his tacks 
for sugar? The problem here is a very easy one, almost too 
easy to occur in practice, since the commodities we have 
taken are very few, and the numbers are all factors of 
twenty-four. Let us work it out. If one pound of tobacco 
is worth four pounds of flour, and a pound of tacks is worth 
two pounds of flour, tacks are worth half tobacco, by weight. 
If one pound of sugar is worth two pounds of rice, and a 
pound of tobacco is worth three pounds of rice, sugar is 
worth two-thirds tobacco, by weight. If, then, tacks are 
worth half tobacco, and sugar is worth two-thirds tobacco, 
tacks are worth three-fourths sugar, by weight ; that is four 
pounds of tacks should buy three pounds of sugar.f 

90. Wanted : A Medium of Exchange.— Such are the ob- 
stacles to direct exchange, or barter. The sense of these 
difficulties early drove the world to the meanfe of avoiding 
direct exchange. This was effected by the use of some 

* Using figures to represent different articles, such as wheat, cot^ 
ton, wool, iron, sug^ir, tobacco, coffee, etc., the teacher might here 
place upon the blackboard tables which should show the difficulty 
of quoting each article in the market in terms of every other. 

f In the illustration given above, it is assumed that tacks are woith 
§ ce»ts ; sugar, 8 ; tobacco, 13 ; flour, 3 ; rice, 4. 



98 POLITICAL ECONOMY. 

article, which, either by law or by general agreement, all 
producers should receive for anything which they had to 
sell, being made willing to do so by the assurance that all 
other producers would receive this article from them, when- 
ever they, in turn, wished to buy. Any article, so used in 
any community, becomes the general medium, or means, 
of exchange ; and to it the people of our race apply the 
name, money. 

Now, let us see how this instrument, or means, or me- 
dium, of exchange works in practice. Let it be supposed 
that, in a given community, wheat has come to be so gen- 
erally used as money that every producer knows and feels 
perfectly assured that, with wheat, he can buy, at any time, 
in any place, from any person, whatever he may desire to 
consume. This being so, he will himself prefer to sell his 
own product for wheat rather than for anything else. In 
such a state of things, the problem of exchange becomes a 
very simple one. A producer has no longer to find out for 
how much of this or that, among twenty or fifty or a hun- 
dred articles, a certain amount of his own kind of goods is 
selling for. He has only to find out how much wheat that 
kind of goods is selling for ; and this he can readily do by 
a single inquiry. Having ascertained this, he is no longer 
obliged to find the men who want the goods he has and also 
have the particular goods he wants ; but the moment he 
finds a man who wants his goods and also has wheat (and 
every one who has any wealth at all now keeps wheat on 
hand, for this purpose) he can close the bargain at once. 
Finally, the great difficulty about '' making change" is 
avoided. If it is an ox he has to sell, he gets for it, say, a 
wagon-load of wheat ; and of this he gives half a peck for a 
pouud of sugar, a bushel for a keg of nails, two bushels for 
a hat, four bushels for a gun, six bushels for a roll of cloth, 
and so on, to the extent of his wants and his means. No 



POLITICAL ECONOMY, 99 

matter how small the value of the thing he wishes to buy, 
he can always take out a quantity of wheat which will be of 
about the same value. 

91. The Money Function. — Let us now recapitulate the 
ways in which money performs its great office as a medium 
of exchange. 

First, it dispenses with the double coincidence of wants 
and possessions, which is involved in barter. 

Second, it promotes the making of change, as between 
articles which cannot themselves be divided without de- 
stroying or impairing their value. 

Third, it furnishes a " price current^' of all the articles 
in the market, through giving a common denominator for 
the value of each and every article, by turns. 

92. Definition of Money. — Having described the money 
function, we are now able to define money. In other 
words, having seen what money does, we can tell what 
money is. Everything which does the work which has been 
indicated above, is money, no matter what it is made of, no 
matter what its size, weight, shape or color. To parody an 
old proverb,* money is that money does. The following 
is our formal definition of money. Like our definition of 
value (par. 3) it is necessarily long and much involved ; 
but nothing less than this will convey the whole truth, so 
that it cannot be misunderstood. 

Money is that which passes freely from hand to hand 
throughout the community, in final discharge of delts and 
full payment for commodities, heing accepted equally with- 
out reference to the character {or credit) of the person who 
offers it, and without any intention on the part of the re- 
ceiver to consume it, or enjoy it, or apply it to any other 
use than, in tur^i, to tender it to others, in discharge of debts 
or in payment for commodities. 

* "Handsome is that handsome does.** 

LofC. 



100 POLITICAL BGONOMT. 

93. An Historical Illustration. — Let us take an illustra- 
tion from the history of Virginia. Tobacco early became 
the chief export of that colony. Since tobacco was always 
in demand for shipment, it was readily taken at the coun- 
try store. Every planter brought his tobacco thither, 
knowing that it would be taken, as a matter of course. 
Every week, or every month, the trader loaded up his teams 
and sent his stock of tobacco to the sea-shore, where, in 
the chief towns, it was exchanged for West India goods, 
dry goods, hardware, etc., imported from abroad. With 
these the teams returned loaded ; and the planters took the 
molasses, the cloth, the boots or the tools they wanted, to 
the value of the tobacco which the trader had received 
from them. 

Even such an extensive use of tobacco, in exchange, did 
not, however, make it money. The transactions which 
have been described were merely instances of barter. But 
the fact that tobacco was thus freely taken at the country 
store soon gave an extension to its use in exchange which 
did make it money. Since tobacco was taken at the store, 
in exchange for goods of every kind, it came to be taken 
between man and man, throughout the community. The 
lawyer and the physician were glad to receive their pay in 
tobacco, because this was always good for groceries and dry 
goods; while the fact that tobacco was taken, not only by 
the store-keeper, but also by the lawyer and the physician, 
made the farmer who raised corn willing to take it in ex- 
change for his product. 

And, so, tobacco became money in Virginia. It was not, 
however, until every one took it, and took it as a matter of 
course, that it was properly to be called money. So long 
as men accepted it with any degree of uncertainty as to 
finding persons who would in turn accept it from them; so 
long as men took it with the feeling that it was something 



FOLITIGAL EGOmMT, 10: 

which they were buying, and which they would have to 
sell over again, something for which they must needs hunt 
up a purchaser, tobacco was not money. 

94. Universal Acceptability Essential to Moneyc — No 
article becomes money until it has acceptance so nearly uni- 
versal that practically every person who has any service or 
product to dispose of, will freely, gladly take it, in prefer- 
ence to seeking, at the time, the specific products or ser- 
vices which he may require from others. He takes it from 
any man, whenever he has anything to sell, because he 
knows that any other man will take it from him, whenever 
he may wish, in his turn, to buy. When an article 
reaches this degree of acceptability, it becomes money, no 
matter what it is made of, and no matter why people want it. 
If, as a matter of fact, people do want it, that suffices for 
all the purposes of a true money. 

The reader should fix his mind strongly on this central 
idea of a Medium of Exchange. Money is always a me- 
dium ; an intermediate thing ; not an end, but a means 
to an end. Men take it, not for its own sake, but for 
what it will bring them. They hold it, not to enjoy it, 
but to be ready for the moment when they shall part 
with it, in purchasing those things which they desire to 
enjoy. 

95. Price. — We have thus far, in this treatise, spoken 
much of Value, and shall continue to do so; but the time 
has now come to introduce a new term, viz.. Price. Value 
is power in exchange : price is power in exchange for 
money. The price of an article is its money-value. The 
value of a horse, for example, represents the power which 
the horse confers upon its owner to command, in exchange 
for itself, the labor of other persons, or many and various 
products, at will, corn, cotton, iron, or what not. The 
price of a horse represents the power which the horse con- 



10^ POLITICAL ECONOMY. 

fers upon its owner to command, in exchange for itself, the 
money of the country. 

Price is, thus, value in terms of money. [N^ow, value, aa 
we saw, depends always upon the relations of demand and 
supply. Price, therefore, being a species of value, must 
depend always upon the relations of demand and supply. 
Increase the quantity of money in the country, the number 
of horses and the demand for horses remaining the same, 
and the price of horses will rise : that is, it will require 
more money, more coins, say, of gold or silver, to purchase 
a horse. Increase the number of horses, the demand for 
horses remaining the same, and the amount of money being 
.unchanged, the price of horses will fall : that is, fewer coins 
of gold or silver will purchase a, horse. 



CHAPTER XII. 
PRIMITIVE FORMS OF MONEY. 

96. The Cereals as Money. — We have told what money 
does, and what money is; and we have, in illustration, 
spoken of one article, tobacco, which has actually served as 
money, through a considerable time and over a considerable 
extent of territory. Let us now consider other historical 
forms of money. 

Wheat, corn, and rye have extensively performed ihis 
office. It is manifest that the cereals have two important 
qualifications for use as money. 

First, they are in universal request, for personal consump- 
tion as food. 

Second, the value of a day's labor, in cereals, comprises 
many separate grains. Consequently, you can take out of 
such a mass of wheat, or corn, or rye, the price of the small- 
est and cheapest article. There is no difficulty in making 
change with this kind of money. 

On the other hand, the cereals, as money, are subject to 
two drawbacks: first, in the great weight and bulk of the 
quantity which represents a day's labor ; and, secondly, in 
their liability to injury, through rust, insects, damp, over- 
heating, or from the mere passage of time. 

97. Cattle and Sheep as Money. — Cattle have also exten- 
sively performed this office. Oxen were used as money 

103 



104 POLITICAL BGONOMT. 

among the Greeks of the Homeric period. Sheep served 
the Italians, at a later period, as the common medium of 
exchange. Even after the abandonment of Britain by the 
Eomans, we find the inhabitants, in the scarcity of coin, 
returning to the use of **' living money, ^^ especially in Scot- 
land and Wales. '^It is very possible," says Sir Henry 
Maine, "that kine were first exclusively valued for their 
flesh and milk; but it is clear that in very early times a dis- 
tinct and special importance belonged to them as the in- 
strument or medium of exchange." 

Cattle or sheep may be either a good money or an incon- 
venient money, according to the circumstances of the com- 
munity. In a pastoral state, they present many advantages 
for this use. They carry themselves ; and thus avoid the 
principal objection to the use of grain as money. On all 
sides are fields and plains, over which the animals may 
graze ; while every member of the society is familiar with 
the methods of guarding and tending them. 

On the other hand, cattle and sheep have two serious 
drawbacks to such use. The first is that each animal has 
too high a value to be used for single, daily purchases. 
Even the calves and lambs will scarcely answer all the re- 
quirements of small change. The second drawback to the 
use of cattle and sheep, as money, is the difference in 
quality which exists among them. Even in a picked herd 
or flock, there is great room for choice ; while it is amazing 
how small and lean cattle can be, if they are to be used for 
paying debts or taxes. In the early days of the Massachu- 
setts colony, citizens were allowed to pay their taxes in this 
way ; and it is related that the cattle which came into the 
hands of the town treasurers were something wonderful to 
behold. 

But while cattle and sheep have been found by many 
tribes and peoples, in a pastoral state, and even when ad- 



POLITICAL BGONOMY, 105 

vanced a certain way in agriculture, to be tolerably good 
money, in spite of these objections, it is evident that the 
"very possibility of answering this requirement fails in all 
highly civilized states. The cost of feeding animals, and 
the risk and trouble of keeping them, become so great as 
absolutely to preclude their use as money. 

In addition to cereals, and to cattle and sheep, a great 
variety of articles have, at one time or another, in one 
country or another, been used in this way. Kice was so 
used along the Ooromandel shore ; cocoa, among the abo- 
riginal Mexicans ; olive-oil, by the inhabitants of the Ionian 
Islands ; blocks of rock salt, by the Abyssinians ; strings 
of wampum, with bullets for small change, by the early 
New-Englanders ; small cubes of compressed tea were used 
as money in the famous Russian fairs ; dried dates in the 
African oases ; beaver skins and seal skins, in many coun- 
tries. 

98. The Metals as Money. — One large class of substances 
have a great importance in the history of money, having 
been used as the medium of exchange in the earliest times, 
and among a wide circle of nations. The metals, es- 
pecially seven of them, have been found to possess in a 
very high degree the material properties required for this 
purpose. 

Iron, lead, tin or copper, one or all, early became the 
money of almost every country whose history we know. 
The numerous uses of these metals made them universally 
acceptable ; while, the art of mining being in those days 
very rude, a small body of metal represented the labor of 
days, and thus contained a high purchasing power. 

Metal money was, in certain respects, better than any 
other form of money known to barbarous communities : 

{a) The metals, though subject in some degree to loss 
through exposure to the air, suffer almost indefinitely less 



106 POLITICAL ECONOMY. 

from fire or other forms of accident than most kinds of 
wealth that are not metallic. 

{b) Bodies of these metals can, with comparative ease, be 
divided or reunited, as may be required ; they may be 
melted down and cast into any shape ; they may be alloyed 
or purified, with comparatively little labor or loss of sub- 
stance. 

It is through its failure in the last respect, that still an- 
other metal, besides those named, has not been used as 
money. This is platinum : a noble metal ; in some respects 
the best of all. In 1828, the Emperor of Eussia under- 
took to use. platinum as a money metal, but, after about 
twenty years, the effort was abandoned, owing to the ex- 
treme difficulty of rendering platinum from ingots into 
coin and from coin back again into ingots, as might be 
needed. 

As the art of mining improved, iron, lead, and tin, one 
by one, became too cheap to be conveniently used as money. 
In all other respects, the metals were just as well qualified 
for this use as ever ; but the great weight of the quantity 
of any one of them which could be produced by a day's 
labor, made such coins in an increasing degree inconvenient. 
Copper longest held its own ; but even this, after a while, 
ceased to be used as money in highly civilized countries, 
except as small change. Among barbarous or semi-bai- 
barous nations, however, copper still remains the chief 
money. 

99. The Precious Metals. — Two of the metals have en- 
joyed a preeminence in the history of money which has 
earned for them the proud title, the Precious Metals. 

Not that gold and silver are the most costly of all. Sev- 
eral metals are more valuable even than gold ; but these are 
found in extremely small quantities, far below what would 



\\A/^^- ^ POtlTICAL ECONOMY. 107 

be required to furnish all the coins needed for use m any 
one considerable country. 

Of the two so-called precious metals, silver first came into 
use as money. We hear of it in early Hebrew history. It 
was long coined by the Greeks and Komans, while gold re- 
mained merely treasure in palaces and temples, or was used 
for extremely precious ornaments. The great Philip of 
Macedon, in the early part of his reign, was wont, when he 
retired to rest, to place under his pillow the small and only 
cup of gold he possessed. 

The extreme beauty of silver, brightest of all the metals, 
together with its many uses in the economy of life, make it 
an object of admiration and desire among all peoples, in 
every stage of social advancement. Easily fusible, highly 
ductile, practically imperishable, silver would have filled 
our highest conception of a money metal, had not the earth 
yielded one transcendent product, in comparison with which 
even silver fades from desire. 

So great is the diflQculty of obtaining gold, that a vast 
amount of purchasing power is concentrated, whether for 
conveyance or for concealment, in very small bulk. Hum- 
boldt, in one of his memoirs, states that, at then existing 
prices, one kilogram of gold would purchase 1611 kilo- 
grams of copper, 9700 of iron, 20,974 of wheat, or 31,717 
of barley. 

But while gold is thus precious, it is found in many 
countries, and in sufficient quantity to allow of its con- 
venient use as an every-day medium of exchange by wealthy 
nations. Were gold as scarce as vanadium, the piece in 
which a workman received his day's wages would require to 
be handled with delicate pincers, like the parts of a watch, 
and would be liable to be blown away and lost by an unex- 
pected sneeze. 

The durability of gold, its fusibility, ductility and mal- 



108 POLITICAL ECONOMY. 

leability, form a group of properties of the highest im- 
portance for the purposes of coinage and circulation ; 
while they add greatly to its uses in the industrial and 
decorative arts. One cubic inch of gold may be beaten out 
to cover millions of square inches, (iold may be alloyed 
and refined, united and divided with the greatest ease, and 
with absolutely no loss of the pure metal. 



CHAPTER XIII. 

CREDIT • THE STANDARD OF DEFERRED PAYMENTS 
THE TABULAR STANDARD : BIMETALLISM. 

100. The Growth of Credit.— What we have thus far 
said concerning capital would be nearly all true, were 
every portion of capital in the hands of its owner, to be 
used by him in production or trade. And, indeed, in that 
primitive state of industrial society of which we have 
spoken so much, capital generally remains in the hands of 
its proper owner. Of course, even here capital is some- 
times loaned by its owners to other persons, upon promise 
of repayment, at a definite time, or upon demand, which 
promise is generally supported by a pledge or mortgage of 
lands or of some form of wealth. Frequently, the body 
or the personal liberty of the borrower is pledged for the 
repayment of the loan, so that if he fail to pay at the 
proper time, the lender, the person who has given credit, 
the creditor, has the right, under the law, to seize his per- 
son, either to make him work as a slave, or to shut him up 
in prison- ^^^' ^^ ^^^^ ^ ^*^*® ^^ society, the total 
amount of capital is very small, and of this only a very 
small proportion is loaned. The great majority of those 
who have capital are both desirous and able themselves 
to employ it in business, in the simple agriculture, or in 
the small manufactures, or in the petty neighborhood 
trade, then carried on. 

As however, communities grow older and advance in the 
' 109 



110 POLITICAL ECONOMY. 

industrial arts, the amount of capital rapidly increases ; 
and of this larger amount a continually larger share is let 
out to others than the owners. The reason for this last 
fact is twofold : 

(a) There is a continually increasing number of per- 
sons who do not have occasion to employ their own sav- 
ings in their own business. Take the case of a small 
farmer. When, perhaps, the grandfather first acquired 
the farm, he was put to great straits to find capital enough 
to properly improve it. He was obliged all his life to 
pinch himself and his family to get the means to pur- 
chase animals and tools, to build fences and sheds and 
barns and a poor sort of house. His son, finding much 
of this done, was not obliged to live quite so meanly : 
but still he, too, continued, through his life, to put all he 
could possibly save into various kinds of improvements, 
including deeper ditches, higher walls, larger barns and, 
perhaps, a better house. The grandson, coming into pos- 
session of a well-improved farm, has a much less urgent 
need for whatever wealth he can save out of his earnings ; 
and, if he does not choose to enlarge his farm, he has every 
year something left over which he can lend to any one who 
desires to build a little mill on a neighboring stream, or to 
set up a small shop or store in the village. The further the 
division of labor is carried, the larger will be the number 
of those who have capital to lend. 

{b) There is another cause which works to the same end. 
The larger the operations of business and the more com- 
plicated the organization of industry, the smaller, relatively, 
becomes the number of those who can safely and success- 
fully undertake production and trade. Very many who 
have capital, in large amounts or in small, fear that, should 
tliey undertake to use it in business for themselves, they 
would lose it in part or in whole, and hence they prefer to 



POLITICAL ECONOMY. Ill 

entrust it to others whom they deem more capable, who 
are already in business and can use this additional capital 
to do more of the same kind of work. 

101. Modern Credit. — This movement, for the loan of cap- 
ital, which we have seen beginning in a very early stage of 
industrial society, goes on at a continually accelerated ratio 
until, in such communities as those to which we belong, a 
very large part, sometimes by far the larger part, of all the 
capital in existence is in the hands of those who do not 
own it, but borrow it from the owners, upon various con- 
ditions and terms of repayment. While this is going on, 
the laws regarding the treatment of the debtor, in case he 
should fail to make payment according to his contract, are 
continually growing milder. Those which made the un- 
fortunate debtor a slave to his creditor are first repealed. 
Then imprisonment for debt, where no fraud is suspected, 
is first mitigated and finally abolished. At last, so-called 
bankruptcy laws are passed, so that a man who has bor- 
rowed money which he cannot repay, and who can satisfy 
the judge that he has done his best, in good faith, has his 
debt wiped out, and is permitted to begin his work in life 
over again. 

These gradual changes in the law relating to debt are 
not due wholly to a better sense of justice or to greater hu- 
manity. They are largely due to policy, for, if production 
and trade are to be greatly, and even mainly, carried on 
with borrowed capital, as is absolutely necessary in such a 
state of society, then the borrowing of capital must be 
made easy and safe, and the old, cruel laws must be 
abolished. 

102. The Creditor Class. — I have shown how, in an early 
stage of society, the cultivator of a well-improved farm 
may have capital to lend to the man who wishes to set up 
a mill or a shop. In a long-settled countrj;i like England^ 



112 POLITICAL ECONOMY, 

the amount so loaned by the agricultural interest, for 
building up manufactures and extending trade, becomes 
enormous. Then, as one branch of manufactures becomes 
rich and strong, it is able to loan capital to those who are 
starting new branches of manufacture. Moreover, the pro- 
fessional classes, so called, become lenders to a large amount. 
A lawyer or physician, who has accumulated twenty or fifty 
thousand dollars, in the course of his practice, has no occa- 
sion to use his capital in his own business ; and is there- 
fore glad to lend it, upon good security, to some one who 
will employ it in business and give him a part of the profits. 
Even the laboring classes become lenders ; and, though the 
amount that each has to loan is small, the aggregate amount 
which hundreds of thousands, or millions, of laborers may 
have to loan, if they are both industrious and frugal, is 
very great. Finally, there is an increasing number of those 
who, having inherited money from their fathers or others, 
are not disposed to employ it productively themselves, but, 
either through fear of losing their capital or from a desire 
to take life easily, prefer to have others manage it for them. 
This is one of those things of which we say that they ac- 
quire force by their own motion. The further the " credit 
system'^ is carried, the greater the inducements to lend 
capital to persons who have peculiar opportunities for em- 
ploying it advantageously, until it may come about, in any 
country, that but a small part of those who have capital 
use it in business for themselves. 

The Standakd of Defekked Patmeis'ts. 

103. Money as the Standard of Deferred Payments. — The 

introduction of credit into trade and industry makes a new 
demand upon money, viz., -that it shall act as the standard 
of deferred payments. If a man parts with the good she 



POLITICAL ECONOMY. 11^ 

has produced, upon the condition that he is only to be paid 
for them at the end of some months, or if the owner of 
capital lends it to another to be repaid, perhaps, years 
after, it is evident that a good money must be something 
more than a convenient medium of exchange. It must 
also possess a reasonable degree of stability in value, so that 
the creditor may receive back, at the time of repayment, 
that which shall be worth as nearlp as possible what he 
parted with. 

104. Wheat as the Standard of Deferred Payments. — The 
articles which have been historically used as money differ 
very widely in this last respect. Some, which have been 
excellent mediums of exchange, have proved to be very 
poor standards for deferred payments. Wheat, as we have 
seen, has been used as money in many ages and in many 
countries, and has served the purposes of a medium of ex- 
change tolerably well. As a standard for payments de- 
ferred for a few years, however, wheat may act very badly. 
It may happen that the crop of one year will be only three' 
quarters or two-thirds of that of the year preceding; and^ 
wheat being something which everybody wants, and want^ 
very much, its value may, in consequence of such scarcity, 
rise to double what it was. In such a case, the man who 
has loaned capital, in the form of wheat, will, on being 
paid back in wheat, during a year of scarcity, receive back 
double what he lent. This is a great wrong to the debtor, 
and may ruin him entirely; while the creditor, though he 
receives much more than his due, will derive therefrom no 
corresponding benefit. All history teaches that unearned 
gains do not help menas much as undeserved losses hurt 
men. Light come: light go. Industry and frugality, 
hopefulness and cheerfulness in labor, the feeling of justice 
between man and man, the willingness to loan capital to 
others, all these are seriously impaired and sometimes 



114 POLITICAL ECONOMY. 

fatally injured by sucli unearned gains to one party, such 
undeserved losses to the other. 

105. Gold and Silver as the Standard of Deferred Pay- 
ments. — On the other hand, the metals have a considerable 
stability of value, within a short term of years. Especially 
is this true of gold and silver. Being practically imperish- 
able, and being mainly used as money, any one year's pro- 
duction, or any two or five years' production, bears a very 
small proportion to the total stock in existence. If we 
suppose the total amount of gold and silver in the hands 
of men to be ten thousand millions of dollars (American 
money), and the annual average production to be a hun- 
dred millions, it will be seen that, should the annual pro- 
duction fall off to fifty millions, for one year, or three, or 
five, the value of the precious metals would be very little 
affected thereby. In the same way, should the annual pro- 
duction rise to one hundred and fifty millions, for the 
same time, the value of silver and gold would not be much 
reduced, in consequence. 

But, while gold and silver have thus a high degree of 
stability of value, as compared with wheat, within a brief 
term of years, they tend to change much more than wheat 
during long periods, such as fifty or one hundred years. 
While one crop of wheat may be large, or may be small, as 
compared with another, and while we may even have two 
or three bad years, followed by as many good years, the 
cost of producing wheat does not vary greatly from age to 
age. On the other hand, after fifty years of a rapid pro- 
duction of gold and silver, the principal mines supplying 
the market may be found almost completely worked out ; 
and a long period may ensue, during which the value of 
gold and silver may steadily rise, before new mines or new 
mining countries shall be discovered, perhaps ages after. 
This has been the experience of the world many times in 



POLITICAL ECONOMY. Il5 

human history. Unfortunate as this condition is, nothing 
has yet been hit upon to remedy the evils resulting. The 
spasmodic and intermittent production of the precious 
metals has always constituted a grave obstacle to industrial 
and social progress, although it was not until recently that 
the effects of this cause were clearly perceived and fully 
appreciated by historians and statesmen. 

A Tabular Standaed. 

106. A Tabular Standard for Beferred Payments. — A 

strong sense of the inconvenience and the injustice result- 
ing from the use of any single article, as money, has led 
certain economists to propose the introduction of a stand- 
ard for deferred payments which shall be different from 
the money used in buying and selling where payment is to 
be made at the time. The standard they propose is to be 
formed, not of any one article, but of several, even of 
many, articles, joined together for this purpose. The idea 
underlying the plan is that, if a number of articles be 
taken, some will rise, to be sure, but others will fall; and 
that, if enough articles be selected, nearly as many will 
rise as will fall, and thus the average value of the whole 
will not greatly change. 

Those who thus propose what is called a tabular stand- 
ard of value, i.e., a standard made up from a table, or list, 
of many different things, do not intend that money shall 
be dispensed with, in ordinary buying or selling; or even 
that money shall be dispensed with in making deferred 
payments. The tabular standard is only to be used to de- 
termine how much money shall be paid, at the end of a 
period of credit. 

Let us illustrate the working of such a system. A sells 
a house to B for $5000. B is to pay for the house at the 
end of three years. Now, with the use of money, it is 



116 POLlflGAL EGONOMY, 

probable that B, at the end of three years, will pay to A 
what will be worth either more or less than what $5000 
would have bought at the time of the sale. It may be con- 
siderably less; it may be considerably more. The least 
likely supposition will be that the 15000 will then be worth 
just what they are now. Either A or B is almost certain 
to lose something, without any fault of his, which the other 
will gain, without having done anything to deserve it. 

But let us suppose that Government had, according to 
this scheme, established a tabular standard of value. This 
could have been done by a law, which should declare that 
certain quantities of coal, of cotton, of iron, of wool and 
of other articles, twenty or thirty in number, should con- 
stitute '^ the standard of deferred payments;^' and that cer- 
tain government officers should every day publish in the 
newspapers the cost of such a bill of goods, according to 
the prices of the day before. Now let us suppose, that, on 
the day when A sold the house to B, the value of the 
tabular standard was 125 : that is to say, $25 would, the day 
before, have bought all those goods, in the quantities fixed 
by the law. A and B, therefore, covenant that B shall, 
at the end of the three years, pay, not 15000, but (200 X 
$25 = $5000) 200 units of the tabular standard. At the 
end of the term of credit, three years, A and B find that 
the value of the tabular standard, as proclaimed by the 
commissioners, is only $20; and B, therefore, pays to A 
$4000, in money. Now, it is true that A has received 
only $4000, instead of $5000 which the house was worth at 
the time of the sale; but, with the $4000 he thus receives, 
A can go into the market, and buy just as many goods as 
he could have done, with the price of the house, three 
years before. B is thus saved from losing $1000. Credit 
has been given and taken, without either party gaining or 



POLITiGAL EGOmMT. lit 

losing through the change in the value of money in the 
mean time. 

That the use of a tabular standard would prevent a great 
deal of injustice and industrial injury cannot be questioned. 
It is, however, a serious question, whether people will ever 
take the trouble to establish this system and maintain it. 
That trouble would not be very great; but most people are 
averse to taking the least trouble in the matter of buying 
and selling. So far, mankind have put up with all the 
evils attendant upon the use of money, which rises and 
falls in value from time to time. It is probable that they 
will continue to do so, although the scheme we have stated 
is perfectly practicable, should people care enough about 
it to take a little pains for the sake of the good it would do. 

Bl-METALLISM. 

107. Fluctuations in the Relative Value of Gold and 
Silver. — Reference has been made, in the last few para- 
graphs, to the fact that the production of the precious 
metals has, through long periods of time, been highly 
spasmodic and intermittent, vast amounts of these metals 
being produced in one period, while, in another, produc- 
tion has greatly fallen off. While this is true of the two 
metals taken together, it is true in a much higher degree 
when either metal is taken alone. At times, silver has 
been produced in large quantities, while the production of 
gold has almost ceased. Then, again, the production of 
gold would spring up rapidly, while the amount of silver 
taken from the mines fell off. It has seldom happened 
that periods of great gold-production have coincided with 
periods of great silver-production. 

Looking at this fact, many economists and statesmen 
have -thought that, if gold and silver could somehow be 
joined together, in their use as money, there would be far 



118 POLITICAL ECONOMt, 

less tendency to a violent rise or fall in the value of the 
compound mass, than in either, taken alone. One method, 
which has been proposed for effecting this object, has been 
to make each coin contain a certain amount of gold and a 
certain amount of silver, so that every person who uses 
coins should have to use both gold and silver. A scheme, 
more highly thought of, and one which has actually been 
put in operation, by many governments, at different times, 
is that to which the name, Bi-metallism, is usually 
applied. 

108. French Bi-metallism. — We shall perhaps get the 
best idea of what might possibly be done in this way, by 
referring to the law which was enacted m France, in 
1803. At that time, the value of gold was assumed to 
be 15^ times that of silver. The law of 1803 decreed 
that every debtor should have the right to pay his 
obligations in coins containing the stipulated amount of 
gold, or in coins containing 15|- times that amount of 
silver, at his own choice. The idea underlying this law 
was that, should gold thereafter tend to become more 
than 15 J times as valuable as silver, all debtors would 
naturally prefer to pay their debts in coins of silver, the 
cheaper metal. This would make silver more sought for: 
i.e., it would increase the demand for silver. Now, to 
increase the demand for an article, other things equal, is 
to raise its price. Thus, a force would be set at work to 
counteract the force which was tending to lower the value 
of silver, as compared with gold. On the other hand, 
since no debtor desired coins of gold, the demand for this 
metal would at once be reduced. Now, to reduce the 
demand for any article is, other things being equal, to 
lower its price ; and thus, in the instance given, a force 
would be set at work to counteract the force tending to 
raise the price of gold, as compared with silver. 



POLITICAL ECONOMY, 119 

In the opposite case, that is, should silver become more 
scarce, and hence tend to rise in comparison with gold, the 
same principle would apply; but the forces would work in 
an exactly opposite direction. Since every debtor would 
seek to pay his obligations in coins of the cheaper metal, 
i.e., gold, the demand for this metal would, by that fact, 
be enhanced, while the demand for silver, to pay debts 
with, would fall off. Thus, again, forces would be set at 
work to counteract those which were tending to make 15|- 
ounces of silver worth more than an ounce of gold. 

109. The Latin Union. — Such was the French scheme. 
At dates subsequent to 1803, other countries, viz., Italy, 
Belgium, and Switzerland, joined with France in this 
measure, forming the league known as the Latin Union. 
The operation of the French law proved extraordinarily 
favorable to the stability of " the ratio" between the two 
metals, viz. 15J to 1, fixed in 1803. Shortly after that 
date, occurred a series of fierce revolts and revolutions 
in the Spanish states of South America, then the prin- 
cipal seat of silver mining; mining machinery was de- 
stroyed; mining populations were scattered; the mines 
themselves filled up or fell in. There was, thus, a very 
strong tendency to raise the price of silver, relatively to 
gold. But the force which the French law had set in 
operation was found sufficient to counteract this cause. 
About 1830, important gold mines were discovered in 
Russia, and again the two metals tended to fall apart from 
the fixed ratio; but again the operation of the French 
law served to keep gold and silver close to the established 
ratio, not only in France, but all over Europe and in 
America, as well. In 1848, gold mines of extraordinary 
richness were discovered in California, and, only three 
years later, in Australia, also. Then came the great strain 
on the bi-metallic system. 



120 POLITICAL ECONOMY, 

It really seemed as though the force which the French 
law brought into operation could not possibly counteract 
the force with which the floods of new gold were seeking 
to tear the two money-metals apart from each other. 
Within twelve or fifteen years, as much gold was produced 
in California and Australia as had existed in 1848 through 
all the world. The wisest and bravest of the French 
statesmen and financiers were alarmed. Apparently, noth- 
ing could prevent gold from falling, under the enormous 
increase of supply, until it should be worth only ten, or 
even only seven, times as much as silver. But France, 
although everything seemed so black and threatening, 
held firmly on to the principle of the law of 1803; and 
sure enough, the storm passed over, and the bi-metallic 
system was not uprooted. Although the ablest financiers 
had predicted that gold would fall fifty per cent., it, in 
fact, fell only one or two per cent., and very soon recovered 
from even that loss. 

It would be too long a story to tell, here, how France, in 
1873, suspended, although she did not repeal, the law of 
1803, which had done so much to preserve the stability of 
value between silver and gold. The writer believes that 
this measure was unnecessary; and that, had the statesmen 
of that period possessed as much moral courage as those of 
1850-57, the French system would again have weathered 
the gale, and the world would now be in the enjoyment of 
all its advantages. Whether the Latin Union, with or 
without the co-operation of other nations, like England, 
Germany, and the United States, will ever again put the 
law of 1803 in operation, is a question which it would be 
idle to discuss here. 

The reader should understand that the subject of which 
we have been speaking is one regarding which there is a 
great difference of opinion among economists, some hold- 



POLITICAL ECONOMY, 121 

ing that the "bi-metallic system can never he made to work 
successfully and permanently. The writers who entertain 
this opinion are entitled to great respect; hut it is per- 
fectly fair to say that many, very many, who once held this 
view have, within the past few years, come over to the side 
of bi-metallism, and iiiat this movement is still in active 
operation. 



CHAPTER Xiy, 
BANKS AND BANK-MONEY. 

110. The Origin of Banks. — ^We have spoken of tJie 
growth of the credit system. We are now to speak of the 
most important agency for carrying on and extending that 
system, viz., the Bank. 

Bnt, while the management of credit is the great and the 
true function of the Bank, banks have, in fact, had their 
origin in many different sources. In Italy, where the first 
banks of modern times appeared, the banks were finance 
companies, which negotiated loans for the king or prince ; 
but came afterwards to exercise the true banking function. 
In Amsterdam, in 1609, a very important bank was 
formed, which had for its principal purpose the melting 
down and assaying of the vast and varied mass of coins 
from many countries, of every degree of impurity,* often 
much worn and clipped, which the trade of that great com- 
mercial city brought into the hands of its merchants. 
After these coins had been melted down and assayed, each 
merchant was given credit on the books of the Bank, to 
the amount of pure gold, or silver, found in the mass of 
coins received from him. These bank credits soon became 
a kind of money, merchants paying for goods by orders, or 
checks, upon the Bank. It will be seen that this Bank 
was really a kind of mint. It did a vast deal for the trade 
of Amsterdam, in competition with commercial cities which 

* That is, containing very different proportions of *'base metal/' 
or alloy, such as copper or lead. 



POLITICAL ECONOMY. 123 

had no such means of ascertaining the real value of the 
coins received by their merchants from other countries. 

111. Origin of English Banks. — In England, banks had 
two different origins. The country banks grew out of the 
business of the shop-keepers and local traders. As these 
had occasion to send money frequently to London and the 
chief sea-ports, in payment for merchandise, they got into 
the way of taking money from the people around them who 
had to pay debts or make purchases in the city or in the 
coast towns, doing this either as a favor or for a small com- 
mission. Those traders who did this work most promptly 
and satisfactorily, and in w^honi people had the most con- 
fidence, finally became known as bankers, and had this for 
their principal or their sole business, out of which they 
made a profit, besides rendering a public service. 

In London, on the other hand, it was the goldsmiths and 
silversmiths who became bankers. These, having large 
amounts of the precious metals always on hand, for the 
purpose of making ^ Opiate" or ornaments, had their shops 
strongly fortified, with armed men on guard, to beat off 
robbers. As other people had no such means of security, 
and as the streets were ill lighted, or not lighted at all, at 
night, and as there were few policemen in those days, while 
there were many bold and ruffianly persons abroad, people 
got in the way of leaving their money and other valuables 
with the goldsmiths, who gave notes, or receipts, for the 
amounts deposited. These notes, or receipts, were finally 
made transferable by indorsement. It was in this way 
that Lombard Street, on which the London goldsmiths had 
their shops in the sixteenth and seventeenth centuries, came 
to be the greatest banking street in the world. 

112. Origin of American Banks. — In the United States, 
again, banks had still another origin. They were generally 
first set up as shops, or factories, for making paper-money. 



124 POLITICAL EGONOMT, 

of the kind which we know as bank-money. The process 
was as follows: A bank was chartered by the State to do 
business in each city or smart town: that is to say, the leg- 
islature passed a law, authorizing certain persons, named 
therein, to establish a bank at such or such a place. The 
persons named, with others whom they chose to associate 
with themselves, met together, paid in a little money, 
generally very little; chose directors, who, in turn, chose 
a president ; and at once began to issue notes, each bearing 
the signature of the bank officers and promising to pay a 
certain sum of money, one dollar or two dollars, or five 
dollars, upon demand, in specie, that is, in gold or silver 
coins made by the United States government. 

113. Bank-money. — The idea underlying this issue of 
bank-notes was as follows: Merchants, manufacturers, 
farmers or others, who desired to purchase supplies or 
labor, would come to the bank with their notes of hand, 
which the bank would discount : that is, the banks would 
accept the notes-of-hand, paying the face value in their own 
bills, first taking out the interest for the three months, the 
six months, or the year, for which these notes-of-hand wer6 
to "run." The persons whose notes-of-hand had thus been 
discounted, paid the bank-notes, or " bank-bills," out to 
their laborers or to others from whom they had purchased 
supplies or materials, expecting that, at the maturity of 
their notes-of-hand, they would be able, out of the proceeds 
of their business, to pay the bank in full, either in its own 
notes, or in the notes of other banks, near by. Meanwhile 
the issuing bank was to receive interest on the paper-money 
it had thus manufactured and put into circulation. 

This interest, however, was not all clear profit to the 
bank. There was the cost of making the paper-money, 
which, to be sure, was not very great, involving the engrav- 
ing of a plate and the printing of the notes therefrom. 



POLITICAL BGONOMT. 125 

Then there were the current expenses of the business, in- 
cluding the rental of an office, the salary of a cashier and 
of a clerk or clerks, stationery, postage, etc. Then, again, 
there was the cost of the ^' specie-reserve/' 

114. The Specie-reserve. — This last term requires to be 
explained. It was always possible that some persons, hold- 
ing the notes of the bank, should come in and demand the 
specie which the notes promised. They might do this, 
either because they actually wanted the gold or silver for 
some purpose ; or from enmity to the bank, hoping to 
'^ break" it, by an unexpected demand; or because the 
banks had issued so many notes as to create a ^^ premium 
on gold," a phrase for the explanation of which we must 
refer the reader to the next chapter (par. 143). Now, in 
order to meet such a possible demand, the bank must be 
actually in possession of some specie. 

How large this '^ reserve" should be, depends much upon 
circumstances. If the notes of a bank are scattered over a 
territory of ten thousand square miles, it is plain that a 
much smaller number are liable to be presented for pay- 
ment, at any one time, than if the notes were nearly all 
held in the city where the bank has its office. A great 
many other things, on which there is not time to dwell, 
enter to affect the question, how large the specie reserve of 
any given bank should be. 

The profit of the bank, through the manufacture and 
issue of paper-money, is, then, the interest on its circulat- 
ing notes, after deduction of the following items, viz. : 

1st. The cost of manufacturing the notes. 

2d. The current expenses of the business, that is, the 
cost of putting the notes out and keeping them out. 

3d. The loss of interest on the amount held as a reserve 
in specie. 



126 POLITICAL ECONOMY, 

115. Wildcat Banking. — It was the profit on '* the cir- 
culation " which constituted the main, and often the sole, 
motive force, in the establishment of banks, in the early 
history of the United States. And so urgent was the de- 
sire for increasing that profit, that the specie-reserve was 
often cut down in the most reckless manner. In some of 
the new States, the phrase ''^ Wildcat Banks^' was not in- 
appropriately applied to many of the institutions brought 
into existence at this time. The amount of specie held by 
them was often so small as to have been ludicrous, were it 
not for the constant peril to the business interests and to 
the private happiness of the community, which this crimi- 
nal recklessness involved. A reservoir with an unsafe dam 
is hardly a greater danger to the village situated upon the 
stream below, than is a bank with an inadequate reserve. 
The amount of suffering inflicted upon the innocent and 
helpless, the destruction of accumulated wealth, the paraly- 
sis of productive energies, caused by the breaking of rot- 
ten banks, could never be expressed in words. If the State 
has any duties, at all, beyond merely keeping people from 
picking each other's pockets and cutting each other^s 
throats, the first of those duties is to provide adequate 
securities against the abuse of paper-money banking. 
Indeed, as a means of picking other people's pockets, bad 
banking can scarcely be surpassed by any other human 
agency. 

116. The Banking Functions. — ^We have seen in what 
various ways banks have actually grown up in difl'erent 
countries and in different times. But, however any indi- 
vidual bank, or the banks of any country as a whole, may 
have originated, banks all tend to come, in time, to do 
about the same things. Nearly all of them act more or less 
as places of "safe deposit.'' Nearly all of them, at one 
time or another, take-on the character of :finance compa- 



POLITICAL ECONOMY. 127 

nies, helping to "place'' government loans, or selling the 
bonds of great industrial corporations. Very largely, also, 
banks make and issue paper-money, although in some 
countries this privilege is restricted to certain favored 
banks, or to a single bank which is largely controlled by, 
and perhaps partly owned by, the State. 

But, however banks originate, and whatever they do, in 
one or another of the foregoing ways, one thing they all 
come to have in common. This is the management of 
commercial credit (par. 110). Commerce may be carried on 
to a considerable extent without banks, at least without any 
institutions known by that name; but, wherever banks 
have been, for one purpose or another, established, they 
immediately begin to draw-in to themselves nearly the 
whole business of conducting and managing the credit 
system of the community in which they are placed. 

To illustrate the operation of this principle, let us take 
the case of a bank founded in one of the small Western 
cities of the United States, say about 1850. The only 
force which caused this bank to be established was the an- 
ticipated profit of the issue of bank-notes (pars. 112-114). 
But no sooner was it established than people who had 
money to lend, and people who desired to borrow money, 
alike began to resort to its counter. Those who did not 
feel themselves shrewd enough to loan their savings to ad- 
vantage, that is, at once profitably and safely, brought 
them to the bank. The officers of the bank, making this 
their principal business, giving their minds to it, and hav- 
ing ample means for ascertaining the "standing" of the 
various persons in the community who might wish to bor- 
row, could loan the capital so placed at their disposal on 
the very best terms, viz., at the highest rate of interest con- 
sistent with good security. 

The means which the bank officers had for obtaining in- 



128 POLITICAL ECONOMY. 

formation were not always such as were open to others. 
Reputable merchants, who knew their business to be in a 
sound state, and wished to borrow capital to increase that 
business, would lay their account-books open, in confidence, 
to the officers of the bank ; while, on the other hand, in the 
case of would-be borrowers who were of a more doubtful 
character, the bank-officers would institute private inquiries 
as to their personal habits, their mode of living, their 
punctuality in dealings. 

By such and other means, the officers of the bank we are 
describing were enabled to loan all the capital which the 
members of the community desired to entrust to them, at 
the very highest rate of interest which was consistent with 
good security. Of this interest, the larger part went to the 
owners of the capital ; while the bank made a handsome 
profit through a small commission on a very large amount 
loaned. There were, however, a few long-headed, shrewd, 
able men of wealth in the community who did not feel that 
they had any occasion for the services of the bank in this 
respect, deeming themselves perfectly competent to make 
their own loans ; and in some cases these men were emi- 
nently successful, looking after their loans with a careful- 
ness and intentness born of the thought that it was their 
own hard-earned savings which were at stake. 

The vast majority, however, welcomed this means of 
giving and taking credit ; and, in general, the capital loaned 
under this system was both more profitably and more safely 
employed than it would have been had each one of its 
thousand owners undertaken to conduct the loan of his 
share for himself. While the amount of wealth which 
many of these persons actually had to lend was very small, 
the aggregate amount thus brought into fhe bank was very 
large; and from this great reservoir of capital streams were 
made to flow, in proper times and in proper amounts, to 



POLITICAL ECONOMY. 129 

water tlie whole field of industry." Whatever of good a 
merchant or a manufacturer may claim to do for the com- 
munity in which he lives and conducts his business, it is 
certainly true that a banker, who is both able and honora- 
ble, performs an even more useful work. The fields of 
industry which, but for him, would now be baking from 
drought, and now be flooded and devastated by tempestu- 
ous torrents, are, through the judicious operations of bank- 
ing, kept evenly and equably irrigated by a steady flow of 
commercial credit. 

117. How Capital Comes into a Bank.— We have spoken of 
a bank as the intermediary between those who wish to lend 
and those who wish to borrow. It must not, however, be 
supposed that men bring carts and oxen and tools and food 
and clothing into the bank, and that those who wish to use 
such things in production or trade go to the bank for them. 
Capital comes into the possession of a bank always in the 
form of " rights," or credits. Thus, a man who has sold 
his crops or his manufactured goods, and received therefor 
notes-of-hand, promising payment, either upon demand or 
at some future, fixed, date, takes these notes-of-hand to 
the bank and there '^indorses them:" that is, by a writing 
upon the back he makes them payable to the bank itself. 
I'or this the bank becomes a debtor to -him, while it be- 
comes the creditor of the persons who gave these notes. 
These persons, therefore, it can order to pay money, in the 
amounts and at the times stated on the face of the notes, 
severally. This power it makes use of in lending capital 
to those who wish to borrow and who can satisfy the oflficers 
of the bank of their financial soundness. 

Sometimes the amount of rights, or credits, which the 
bank has thus had placed at its disposal, for the purpose of 
discounting notes, is many times its own capital. It is the 
certain reward of prudence and integrity in the management 



130 POLITICAL ECONOMY. 

of a bank, that people continually increase the amount they 
have on deposit, until, in time, a good old bank comes to 
have a really enormous body of wealth at its disposal. This 
includes, not only the sums which are brought to the bank 
for the specific purpose of being loaned out, but also the 
'^ reserves" of merchants, on which no interest is expected. 
Some merchants have, almost habitually, five, ten, or 
twenty thousand dollars deposited in the banks in which 
they do business. This is because it is both more con- 
venient and more safe for the merchant that the bank, 
with its vaults and its barred windows and its armed 
watchmen, should take care of this property, than that it 
should remain in his own hands. 

Of course, if only one merchant should thus leave a sum 
on deposit at the bank, the officers could not safely loan 
any part of it, since the owner might, any day or any hour, 
call for the whole. But, if one hundred merchants, say, 
should leave on deposit an average of ten thousand dollars 
each, the bank could safely loan a considerable part of the 
million dollars, since it would be practically impossible that 
all the merchants should call for their money at the same 
time. The bank might safely lend four hundred thousand 
dollars on mortgage of real estate; lend three hundred 
thousand on " short time" business paper, that is, on notes- 
of-hand, given by merchants or manufacturers, payable in 
a few weeks, or a few days, or even "on call;" and hold 
two hundred thousand, more, in " governments," or other 
stocks or bonds, which could be sold almost at a moment^s 
notice. The remaining one hundred thousand dollars, out 
of the million, it might keep in the form of specie or bank- 
notes, ready for any call which might be made upon it. 
It will thus appear that, out of a million of dollars of com- 
mercial deposits, the owners of which expect no interest. 



POLITICAL BGONOMT. 131 

the bank might properly and safely use nine hundred 
thousand dollars, receiving a handsome income therefrom. 

118. Banking Economizes the Use of Money. — Besides 
economizing the use of capital, in the way we have just 
shown, hanks greatly economize the use of actual money. 
If there were no banks^ each merchant, each private citizen 
of means, would have to keep by him, in his pockets or in 
a chest, a considerable amount of ^' ready money,'^ for daily 
uses or to meet sudden demands. If, however, the mem- 
bers of the community, alike the very rich and the merely 
well-to-do, form a habit of keeping their money in bank, 
there will be a great saving in the amount of money re- 
quired, on the whole. Twenty thousand dollars, perhaps 
only ten thousand dollars, in bank, will go as far towards 
meeting the needs of the community, as fifty thousand 
dollars in private hands. The days on which one man 
wants to use money will not be the same as the days on 
which his neighbor has occasion to use it ; and the bank, 
holding the money for all, will be able to make a much 
smaller amount do a much larger work in effecting ex- 
changes. Hence it follows that countries where the bank- 
ing system is highly developed, as in England and the 
United States, require very much less of actual money 
than countries like France and Germany, where there are 
comparatively few banks, and where the great majority of 
the people keep their funds in their own shops or houses. 

119. Banks Economize Time, Labor and Risk, in Paying 
Debts. — Besides economizing the use of money, banks effect 
an enormous saving in the time, the labor and the risk, in- 
volved in the daily payment of the debts incurred in the 
ordinary course of business. In every large city, there are 
every day to be paid, and to be received, hundreds of thou- 
sands, or even millions, of dollars; and this great work is 
performed by the bank with infinitely less of effort than 



1S2 POLITICAL EGONOMT. 

would be required if the same work were to be done by 
individuals, each for himself. Let us suppose that in a 
certain city there are one thousand merchants or traders, 
and that each one of these has, on the average, to make 
twenty payments a day. Think of the amount of time and 
labor that would be expended in sending trusty clerks or 
messengers all over that city, at the end of the day, to 
make those twenty thousand payments ! Think "also of the 
risk involved in sending such sums of money through the 
streets : risk arising both from the danger of robbery * and 
also from the possible dishonesty of clerks and messengers! 
But when these payments are to be made into the bank, 
and that generally by checks, drawn upon deposits already 
in the bank, the time, labor and risk involved become re- 
duced to a minimum. 

120. The Cancellation of Indebtedness. — The foregoing 
would hold true, were the times in which merchants have 
to make payments not generally the same as those in which 
they have to receive payments. But, since merchants are 
all the while both buying and selling, the payments to be 
made, and to be received, on the same day, largely cancel 
each other. One day a merchant may have two thousand 
dollars to pay, and twenty-five hundred to receive. In 
this case, the bank " sets off" the one sum against the other, 
so that the merchant's debtors have only to provide five 
hundred dollars to meet the difference. On the next day, 
perhaps, he has fifteen hundred dollars to receive, and two 
thousand dollars to pay. In this case, he sends his bank a 

* At one time there was known in New York a class of men called 
Butcher- cart Thieves, who lay in wait for messengers carrying bags 
of specie or parcels of bank-bills. After snatching a bag, the 
thief, or highwayman, would jump into a butcher's cart, drawn by 
a fleet horse, with a confederate at the reins, and, in the surprise and 
confusion, would often escape pursuit. 



POLITICAL ECONOMY. 133 

check for five hundred dollars, drawn on his own deposit 
in the bank, or, else, some one else's check, which he had 
purchased for the purpose; and, again, all accounts, so far 
as he is concerned, are balanced. 

The cancellation of indebtedness, of which we are here 
speaking, is carried to an inconceivable extent in modern 
commerce. The bank, through the almost universal prac- 
tice of " depositing" commercial paper, becomes, by turns, 
creditor to all debtors, in the community, and deUor to 
all creditors; and, having thus in its hands nearly all notes 
and bills maturing, day by day, it is able to offset one by 
another, so that only a very small fraction requires to be 
paid in money. 

121. The Clearing-house. — We have thus far written as 
if there were but one bank in any community, however 
large. In a great city, however, many banks may be re- 
quired to do all the business of all the merchants. In the 
city of Boston there are more than forty banks in opera- 
tion. Each bank carries on the cancellation of indebted- 
ness within itself, so far as possible; and, at the end of 
each business day, sends a clerk to a Clearing-house, or 
bankers' bank, with a statement of the amount due from 
it to every other bank in the city, and of the amount due 
to it from every other bank, together with the money 
necessary to make up the difference, if the balance be 
against the bank in question. If, on the other hand, the 
balance be in favor of the bank in question, the clerk is 
authorized to receive the difference. 

122. Banking Promotes Punctuality in Payments. — Be- 
sides effecting a great economy in the use of capital; a 
great economy in the use of money; a great economy in 
the time, labor and risk involved in making payments, 
banks bring into commercial life a principle of much im- 
portance to industry and trade. This is the principle of 



134 POLITICAL ECONOMY. 

punctuality in making payments. This may be said to "be 
almost wholly a product of the banking system. Wherever 
payments are due from one person to another, even when 
the debtor is well-to-do, there is always great uncertainty, 
and generally not a little delay, as to the time of payment. 
If rents are due on the first of the month, a few tenants 
pay on that day; others, on the second; some, on the third, 
fourth and fifth; others, not until the tenth; others, still, 
only after being ^^ dunned" again and again. If payments 
are due on account of groceries or meats or clothes pur- 
chased, those payments generally dribble along, over weeks 
and even months. Such is the uniform experience of all 
communities in the matter of paying debts, whenever the 
transactioDS are *' between man and man.^' 

In respect, however, to all payments which are to be 
made into a bank, the rule of absolute punctuality is uni- 
versally enforced, without fear or favor. If a note is due 
on a certain day, and the payment is not made before the 
close of banking hours, say three o'clock in the afternoon, 
the note ^^goes to protest:" that is, an officer of the bank 
goes before a notary public and makes oath that payment 
has been demanded and has not been made. The delin- 
quent is notified of this, and is informed that, unless he 
immediately makes payment, together with "costs,"* he 
will be proceeded against at law. It does not matter who 
the man is or how rich he is. It is needless to say that a 
protest is always a source of intense mortification to a mer- 
chant or a banker. Indeed, it is, except to a man of great 
wealth and high credit, almost fatal. The announcement, 
in the newspapers, that such or such a firm has allowed a 
note to go to protest, is generally accepted as meaning that 
the firm is bankrupt. Consequently, every business man 
or business house takes every precaution; and, in case of 

* That is, the cost of protest, including the notary's fee. 



POLITICAL ECONOMY. 135 

financial embarrassment, strains every nerve and makes 
every sacrifice, to avoid such a calamity. 

Now, this punctuality in payments which the bank de- 
mands and enforces, is of the highest advantage to produc- 
tion and trade. Indeed, it may be said to be absolutely 
essential to the vast operations of modern industry. Retail 
trade has necessarily to submit to all the inconveniences 
and losses that are involved in the lack of punctuality 
which we have noted; but the great production, the great 
trade, could not be carried on unless the manufacturer or 
the wholesale merchant knew how much he could rely 
upon certainly receiving each day, to meet the obligations 
due from him on that day. It is, therefore, a service of 
inestimable importance which banks render to society by 
enforcing the rule of absolute punctuality in payments. 

But, it will be asked, is not this advantage to society, as 
a whole, obtained at the cost of much hardship and suffer- 
ing on the part of individuals ? I answer that, here and 
there, now and then, inconvenience and even injury may 
result to persons from the severe and unrelenting enforce- 
ment of this rule; but that, in the vast majority of cases, 
the requirement of punctuality not only does no injustice, 
but is of actual benefit, even to the debtors themselves. 
Speaking broadly, procrastination always and greatly in- 
creases the burden of debt. If railroad trains, instead of 
leaving the station on the minute, so far as possible, as they 
now undertake to do, were to adopt the policy of waiting 
for people, it is probable that a great many more persons 
would lose their trains than do where the rule of punctual- 
ity is enforced. To hold men sharply and sternly up to 
their duty, may require measures which seem harsh; but 
there can be no doubt that it is, on the whole, a great 
kindness. Duties are never so easy to perform as on the 



186 POLITICAL ECONOMY. 

very day when they onght to be performed. Debts are 
never so light as on the day when they first come due. 
123. Banking Promotes Commercial Integrity. — But 

there is more to be said on this point. The banking sys- 
tem, by its requirement of punctuality in payments, has 
done more to promote commercial integrity than any other 
cause, perhaps than all other causes put together. Pro- 
crastination not only increases the burden of debts ; it in- 
sensibly but surely generates dishonest feelings regarding 
them. A man who has again and again put off the pay- 
ment of a debt at last comes to feel that that debt is 
somehow a great wrong to him, and is only too ready to 
take advantage of any means of escaping payment, how- 
ever shabby or shameful. Delay of payment always means 
doubt regarding payment; doubt regarding payment always 
sets evil thoughts at work in the brain, to find the way of 
avoiding payment altogether. 

That kind, or that degree, of honesty which keeps men 
from actual robbery or theft, comes at a much earlier stage 
of society than that kind, or that degree, of honesty which 
makes men cheerfully willing to pay the debts they have 
fairly and openly contracted. Eor one man, in our present 
social state, who would steal, twenty will do that which is 
no better than stealing, in order to escape the payment of 
honest debts. 

When banks have long existed in any community, the 
instincts of commercial honesty become developed in a 
really remarkable degree. Men, knowing that they have 
got to pay their debts, and to pay them on the very day 
they are due, take it as a matter of course. What men 
take as a matter of course they take easily. In such a 
community, the mind of the merchant does not begin to 
dwell on the dangerous thought 'of first postponing and 
then escaping payment. The way to evasion is almost 



POLITICAL ECONOMY, 187 

always through procrastination. If the door to procrasti- 
nation be barred, evasion will be less and less resorted to, 
less and less thought of. 

124. Foreign Exchange.— We have spoken of the cancel- 
lation of indebtedness among the merchants of a city. 
The same principle is largely carried out to cities, states 
and nations. For example, there are a great many mer- 
chants in New York who, every month or every day, have 
sums to pay to merchants in Chicago, for corn and wheat, 
beef and pork. There are, also, a great many merchants 
in Chicago who have sums to pay, in the same times, to 
merchants in New York, for dry-goods, groceries, and 
hardware. If, now, the debtor merchants in New York 
had to send to Chicago all the money necessary to dis- 
charge their obligations, and the debtor merchants in 
Chicago had to do the same thing towards New York, there 
would be an enormous amount of money always going 
backward and forward between the two cities, at great 
cost, great risk and much loss of time. Instead of this, 
there is a mutual cancellation of indebtedness, just as far 
as this can be carried. A dry-goods merchant of Chicago, 
who has to pay a hundred thousand dollars in New York, 
goes to a wheat merchant, on the next street, and buys 
from him a draft, or order, upon a New York wheat ex- 
porter, for that sum. This he sends, by mail, to his own 
creditor in New York, who calls upon the wheat exporter 
for the money. Thus two large debts have been paid, 
without any money whatever passing between Chicago and 
New York. Of course, it will not always happen that the 
amount of debts due to a city, in a certain time, is equal to 
the amounts of debts due from that city in that time. 
Where there is a failure of coincidence as to the amount of 
indebtedness between two cities, money must be sent, by 
one of them, to make up the difference. 



138 POLITICAL ECONOMY, 

Whenever the principle of the cancellation of indebted- 
ness is carried out to cities and states and nations, we use 
the term Exchange, or Foreign Exchange. The term, 
foreign exchange, is only properly used where different 
nations are concerned. 

125. Par of Exchange. — We have assumed the case of a 
merchant in Chicago who has one hundred thousand dol- 
lars to pay in New York, and who, instead of sending the 
money to New York, purchases the right of another Chi- 
cago merchant, probably in another branch of business, to 
receive that amount of money in New York ; and in this 
way pays his debt. But at what rate shall the first mer- 
chant purchase this right ? Shall he pay for it a hundred 
thousand dollars, or more, or less ? That will depend on 
whether ^^ exchange on New York" is "at par," or "above 
par," or ^* below par." Let us illustrate the meaning of 
these terms. 

Suppose that, at the time in question, Chicago merchants 
had twenty-five millions of dollars to pay in New York, 
while New York merchants had only twenty million dol- 
lars to pay in Chicago. It is evident that all the Chicago 
merchants who had money to pay in New York could not 
find merchants in their own city who had the right to 
receive money in New York. Competition would then 
begin for the rights which were to be purchased. The 
Chicago merchants would be obliged to pay something 
more than a thousand dollars for the right to receive a 
thousand dollars in New York. If, on the other hand, the 
amount to be paid by New York to Chicago exceeded the 
amount to be paid, in the same time, by Chicago to New 
York^ competition would set in among the ^^ sellers of ex- 
change" in Chicago. Each of these would be willing to 
let his right to receive a thousand dollars in New York go 
for something less than a thousand dollars, since, other- 



POLITICAL JavONOMY, 139 

wise, he would be obliged either to bring the money actu- 
ally to Chicago, at some expense, or else to leave the money 
idle in New York. 

Exchange is said to be " at par" between two places^ 
when a man, by paying in a certain sum of money in one 
of these places, can purchase the right to receive an equal 
amount of money in the other place. Exchange is said to 
be "above par," when a man is obliged to pay in more 
money in the place where he does business than the 
amount that he can thereby purchase the amount to 
receive in the other place. Exchange is said to be "below 
par," when a man can purchase the right to receive money 
in the other place by paying in a smaller amount in his 
own town or city. 

126. The Limits of Exchange. — What are the limits of 
exchange : that is, how far may exchange rise above par ; 
how far may it fall below par ? I answer, that the limits 
of exchange between two places are fixed by the cost of 
transporting money between those places. If " exchange 
on New York" rises above par in Chicago, it can go no 
higher than the cost of sending money on from Chicago to 
New York, because, rather than pay more than this, Chicago 
merchants will actually send the money. For a similar 
reason, exchange cannot fall below par by more than the 
cost of bringing-on the money. 

Of course, the reader will see that the fact of exchange 
being above par, or being below par, constitutes a certain, 
small, disadvantage, or advantage, as the case may be, to 
the trade of a city or a country. If I, as a merchant in 
New York, sell certain goods to a merchant in Liverpool 
for one thousand dollars, but have to sell my right to 
receive that sum for nine hundred and seventy-five dollars, 
it is, to me, the same as if I had sold the goods for nine 
hundred and seventy-five dollars. If, on the ether hand, 



140 POLITICAL ECONOMY. 

1 could have sold my right to receive the money, at a 
premium of twenty-five dollars, it would have heen the 
same to me as if I had sold the goods for one thousand and 
twenty-five dollars. 

127. Three-cornered Exchange. — We have thus far 
spoken as if the cancellation of indebtedness, by means of 
so-called exchange, were carried on between two cities or 
two countries only. As a matter of fact, three cities or 
three countries may take part in effecting this cancellation 
of indebtedness. The United States, for example, sells to 
England much more than it buys from England; and, there- 
fore, so far as these two countries are concerned, there 
would be a great stream of money constantly flowing from 
England to the United States. But the United States 
buys much more from China than it sells to China ; while, 
on the contrary, England sells much more to China than 
she buys from that country. The merchants of the United 
States, consequently, pay their debts to China by "ex- 
change on London." Having the right to receive large 
sums in London, they sell these rights to Chinese mer- 
chants, who are glad to obtain them in order to pay the 
indebtedness of China to England. In this way, it will 
be seen, the amount of indebtedness which is cancelled 
through the operations of " exchange" is greatly increased, 
and the amount of money to be actually sent from country 
to country is correspondingly diminished. 

We have spoken of three-cornered exchange ; but, in 
reality, foreign exchange is a many-sided figure. What we 
have represented the United States, England and China 
as doing, all nations do, so far as they can, each using 
every favorable balance with another nation to offset some 
portion of their indebtedness to still other countries. 

The operations of exchange are largely carried on 
through banks, although a special class of "^^ dealers in 



POLIITGAL ECONOMY, 141 

excliange" arises in all cities where this business is espe- 
cially important. The chief centre of exchange-operations 
is London. To this great clearing-house are sent ^^ bills of 
exchange " from every quarter of the globe. No matter in 
what city, upon what continent, a man may wish to pay a 
debt, he can almost always find in London some one who 
has a ^'credit" on that city, that is, a right to receive 
money there. By purchasing this right, or credit, and 
sending it to that city, he can pay his debt there without 
sending the money. 

128. The Banking Agencies. — Such, as clearly as I can 
describe them in this short space, are the Banking Func- 
tions. The banking agencies may be classed as four : 

1st. State, or government, banks. 

2d. Joint-stock banks. 

3d. Private banks. 

4th. Bill-brokers and individual dealers in exchange. 

The banking agency which has been chiefly employed in 
the United States, is the joint-stock bank. The vast 
majority of all the banking work in the history of this 
country has been performed by banks of this character, 
although private banks are not unknown, and the profes- 
sion of bill-broker has always been extensively followed. 
In the early part of this century a very large proportion of 
the banking work of England was done by private banks ; 
but during the last fifty years the proportion of private 
banks has been constantly diminishing, and their work has 
been more and more taken up by joint-stock banks. 

In the United States down to 1865, joint-stock banks 
were generally created, or '^chartered," by general or 
special acts of the legislatures of the several States. Since 
that date, however, most of the banks of this country have 
been brought under the National Banking Law ; and their 
issues of bank-notes are regulated by the Treasury Depart- 



142 POLITICAL ECONOMY, 

ment at Washington. Formerly the bank-money of the 
United States was of the most heterogeneous character. 
The banks of some States made very bad money, while the 
banks of other States made very good money, and the 
banks of other States made money neither very bad nor 
very good. Now, all the bank issues of the United States 
are homogeneous; and no man cares whether the bank- 
notes he has in his pocket come from Massachusetts, from 
Michigan, or from Missouri. 



CHAPTER XV. 
POLITICAL MONEY : INFLATION. 

129. The Essence of Political Money. — We have thus far 
spoken of two kinds of money. The first might perhaps 
be called natural money. It is sometimes, though not 
quite correctly, called *^^ value-money." In the United 
States, it is often called "hard money." This is money of 
which it may be said that, no matter what it is made of, 
the supply is naturally limited by the cost of production. 
Take metal money, for instance, whether of copper, of 
silver, or of gold. The reason why the supply is no greater 
than it is, is because the cost of production is no less than 
it is. Diminish the cost of production, and the supply 
might and probably would be correspondingly increased ; 
but, so long as the cost of production remains the same, 
the supply cannot be greatly or rapidly increased. To 
raise two hundred thousand ounces of gold from the crust 
of the earth requires twice as much labor as to raise one 
hundred thousand ounces. 

The second kind of money, viz., bank-money, is not sub- 
ject to natural limitations of supply. The cost of the ma- 
terials out of which such money is made, viz., paper, an 
engraver^s plate and printer's ink, bears a very small pro- 
portion to the value for which the notes are expected to 
pass in circulation. The cost of making a one-dollar bank- 
bill may perhaps be one cent. The cost of making a ten- 
dollar bank-bill is no greater : hence, the additional nine 
dollars of this money cost nothing. We may, therefore^ 

143 



144 POLITICAL ECONOMY. 

say that bank-money has no natural limitation of supply. 
It is as easy to make ten millions of it as to make one 
million. 

But, while bank-money has no natural limitation of 
supply, there is a more or less stringent commercial limi- 
tation, found in the fact that the bank is by law obliged to 
give specie, dollar for dollar, for all its own bills which may 
be presented to it. If, then, bank-money be put out in 
excess, there will (for reasons which will be shown in 
pars. 140-1), at once or at an early date, begin a movement 
which will bring the bills back to the bank, for redemption 
in coin. The bank, therefore, in order to avoid " suspen- 
sion of specie payments," which is failure, or bankruptcy, is 
bound to be careful not to put out its notes in excess, and 
to be always provided with ample reserves of specie. This 
necessity constitutes what I have called the commercial 
limitation upon the supply of this kind of money.* 

The movement of bank-notes back to the bank, for re- 
demption in coin, is called the Eeflux. Most economists 
hold that the reflux takes place so promptly that bank- 
money can never be issued in excess, to any degree or for 
any period of time. There are some economists who hold 
that the reflux does not begin so promptly but that excess 
may occur, in some degree, and be continued for some time. 
All, however, are agreed that, if the laws punishing banks 

* I am here speaking of bank-money, in communities where the 
principles of sound banking are known and respected. In the early- 
history of the United States, much of the paper put out by the banks 
(see par. 115) was strictly inconvertible paper-money — just as much so 
as if redemption had never been promised, for redemption was never 
intended and was not provided for. Neither law nor public opinion 
enforced the obligation of the bank to pay specie on demand. Banks 
were allowed to continue in business after they had failed to redeem 
their notes ; and even declared dividends out of the profits of money 
which they withheld from their lawful creditors. 



POLITICAL ECONOMY. 145 

for insolvency are severe and are strictly enforced, excess 
can never be carried to a great extent, or be continued 
througb long periods of time, owing to the reflux. We 
may, therefore, safely say that this kind of money is sub- 
ject, in a very high degree if not altogether, to a commer- 
cial limitation of supply. 

Of the third kind of money, that of which we are about 
to speak, it may be said that it is subject to neither natural 
nor commercial limitations of supply. Like bank-money, 
it has no appreciable cost of production, since it is a^ easy, 
or almost as easy, to make twenty millions of it as to make 
ten millions, or one. Unlike bank-money, it is not sub- 
ject to reflux, because the government which issues it is not 
bound to redeem it, dollar for dollar, in coin. 

130. Political Money Described. — What we here call po- 
litical money is sometimes called government paper-money, 
or ''Fiat" money. It consists of bills, or notes, or scrip, 
issued from the treasury of the government itself. Pay- 
ment in coin may or may not be promised upon the face of 
the notes ; but, inasmuch as the government cannot be 
sued by its subjects, or citizens, and inasmuch as the gov- 
ernment can never, by its own courts, be declared bankrupt 
and sent into insolvency, such money must be considered 
as all practically irredeemable, or ''inconvertible,'' as it is 
more commonly called. If government chooses to redeem 
its notes, it can do so ; if it does not choose to redeem its 
notes, it cannot be compelled to do it. One month the 
treasury may redeem in gold all its own notes brought to 
it ; another month it may refuse to redeem any. All the 
time the money is inconvertible, because redemption is at 
the pleasure of the government, not a matter of right on 
the part of the holder of the notes. 

131. Is it Good Money or Bad Money? — The question 
whether political money acts well or ill, for the trade and in- 



146 POLITICAL ECONOMY, 

dustry of the country, has been much discussed, and widely 
different opinions are entertained regarding it. It may, 
however, fairly be said that the most learned economists, the 
soundest financiers, the greatest statesmen, in all countries, 
are nearly unanimous in their opposition to it. I believe 
that the reason why many generally intelligent persons 
favor this kind of money is because they see only a part of 
the case. Let us inquire what is to be said for and against 
political money. 

132. Is Political Money Cheap? — In the first place, it is 
alleged that political money has the great advantage of su- 
perior cheapness, over either of the two kinds of money 
previously described. Let us suppose that a country has 
used bank-money, to the amount of four hundred millions 
of dollars, the banks all the while holding a hundred and 
fifty millions, in coin or bullion, as a basis for their circula- 
tion. If, now, the bank-notes were all to be withdrawn, 
and the government were to issue, in their stead, four hun- 
dred millions of its own notes, or bills, the hundred and 
fifty millions of specie could be sent abroad, to other coun- 
tries, which still used gold or silver, and one hundred and 
fifty million dollars' worth of iron for railroads, of ma- 
chinery for mills, of wool for making cloth, or of silk goods 
or wines, could be brought back. It is a perfectly proper in- 
stinct of mankind to choose the shorter of two equally good 
ways of reaching an object; the cheaper of two equally good 
instruments for doing a piece of work. Money is nothing 
but an instrument of exchange; and, if political money does 
its work as well as any other kind of money, and is also 
cheaper, it is altogether to be preferred. On the other 
hand, the work which money performs, in any state of in- 
dustrial society, is so vastly, so vitally, important, that no 
money can be said to be really cheap which does that work 
poorly. A rotten bridge, a leaky dam, may possibly be 



POLITICAL EGOmMT. 147 

cheap, but bad money cannot be. Let us then inquire how 
political money does its work, whether well or ill. 

133. Political Money as the Medium of Exchange.— 

We saw (par. 91) that money performs its great office, as a 
medium of exchange, 

1st. By dispensing with the double coincidence of wants 
and of possessions which is involved in barter ; 

2d. By promoting the making of " change" ; 

3d. By acting as the common denominator of values, for 
all the articles in the market. 

All of these things political money can do just as well 
as any other kind of money. History abundantly shows 
that, if a strong and well-ordered government undertakes to 
furnish its own people with money, by issuing notes from 
its treasury, in amounts no greater, or not much greater, 
than the amount of gold, or silver, or bank-notes, previously 
circulating, and if the government, in so doing, makes its 
notes (1st) receivable for taxes or public dues, and (2d) 
"legal tender" for debts due from one citizen, or subject, to 
another, such notes will pass easily into circulation through- 
out the community, without objection or distrust, and will 
thereafter act as the common medium of exchange, as a 
matter of course. Every person, in his place in the indus- 
trial order, be that high or low, will be just as eager to 
obtain these government notes as he formerly was to obtain 
bank-notes, or gold and silver. No one will resort to barter, 
or curtail or modify his production of wealth, as a means 
of escaping the use of such money. Such money, being 
thus used as a general medium of exchange, becomes, by 
virtue of that fact alone, the common denominator of 
values. If three articles exchange severally for eight, 
four and two pieces of paper, of a certain color and bear- 
ing certain words and figures, we learn the relative values 
of these three articles just as readily and just as exactly as if 



148 POLITICAL BGOmMY, 

they exchanged, severally, for eight, four and two coins, 
of a certain size and bearing certain devices. 

134. Political Money as the Standard of Deferred Pay- 
ments. — Now, since political money will do all this, why is 
it not a good money ? I answer, because, as we saw in para- 
graph 103, the money of a highly organized industrial state 
has to act, not only as a medium of exchange, but, also, as 
a standard for deferred payments. Now, since political 
money is subject to neither a natural nor a commercial 
limitation of supply, having itself no cost of production, it 
is possible, it is always, socially speaking, highly probable, 
that the amount of such money may be made to vary so 
greatly as to make it a very unsatisfactory standard. Those 
variations of amount may easily be carried to such extremes 
as to work the grossest injustice, as between debtor and 
creditor, and inflict the greatest injury upon production 
and trade. 

We have seen (par. 105) that even metallic money is sub- 
ject to considerable variations of amount, from age to age ; 
but here the injury that may be done is not of man's de- 
vising, and hence is without that sting of injustice which 
accompanies injuries that are done of a purpose. More- 
over, it would be a very extraordinary condition of things 
(although such a condition of things has existed) which 
should allow the amount of precious metals to be doubled 
in twenty-five years, or to be diminished one-half in a hun- 
dred years. The amount of government paper-money, how- 
ever, may readily be doubled or quadrupled in a few months. 
Not only is this physically possible, but as much as this, 
and even a great deal more, has actually occurred. Con- 
gress, during our Eevolutionary war, issued twenty times 
as much money, of this character, as there had been of 
metallic money (silver) in the Colonies. The French 
revolutionary government, a few years later, issued prob- 



POLITICAL ECONOMY. 149 

ably fifty times as much paper-money aS there had been of 
metallic money in France^ when they began. 

135. The Inherent Tendencies of Political Money. — But 
it is not a sufficient reason for rejecting any instrument, 
which might be of use to society, that it may conceivably be 
grossly abused, or even that it has actually been so abused, 
under circumstances not favorable to its proper working. 
To reject a social instrument, or agency, on such an account, 
would be as foolish as to accept it merely because it might 
conceivably be used to advantage. The question is, always, 
of the tendencies of social agencies and instruments. Hu- 
man nature being what it is, are they lilcely to do more 
harm than good ? If they are, it would be inexpressibly 
foolish to adopt them, even though it could be shown that, 
if properly used, they might effect a great saving of labor, 
or yield a great gain of power. 

Now, regarding political money, it can, without any 
prejudice, be said that it is subject to two evil tendencies, 
both of which are very strong ; both of which operate con- 
tinuously ; .both of which are liable, at special times, to 
become aggravated to such a degree that they can scarcely 
be resisted. 

136. The Fiscal Motive to Excessive Issues. — The needs 
of the public treasury constitute the most formidable of 
the two dangers which beset government paper-money. 
Any government, no matter how strong and prosperous the 
people, is liable, now and then, to find its revenues, even in 
time of peace, fall short of its necessary expenses. If a 
government, in such a strait, has already large amounts of 
paper-money outstanding, the pressure upon the treasury, 
or upon the parliament or the congress, to increase those 
issues of paper, to meet the exigency, will be very strong. 
History abundantly shows the weakness of governments 
under such a temptation, even where solemn public prom- 



150 POLITICAL HGONOMY. 

ises had been given that no such increase of issues should 
be made. Political virtue is seldom sufficient to resist this 
temptation, provided the government and the people have 
once become accustomed to the idea of government paper- 
money. Time is no safeguard in this respect. The liabil- 
ity to over-issue does not diminish with the lapse of years. 
Moderation in the use of such money does not form a 
political habit, which becomes a security against abuse. On 
the contrary, the more familiar a people become with such 
money, the less strenuous will be their opposition to over- 
ssues. I deem it perfectly fair to say this. 

137. Paper-money in War. — But it is on the occurrence 
of war, that the greatest dangers from that source arise. 
A government which already has this kind of money in 
circulation is almost certain to resort to its excessive and 
destructive use, should war break out. The needs of the 
treasury, for the means to raise and equip armies and 
navies, become at once enormously increased. It is so 
much more easy to supply these needs by pouring out a 
great volume of paper-money, in payment for goods and 
services, than to do this by enhanced taxation or by govern- 
ment loans, that it would be unreasonable to expect the 
government not to resort to that means. The moral courage, 
the political wisdom, which would be required to restrain 
rulers and legislators from such a course, are seldom found. 
Yet the resort to issues of paper-money, at the outbreak 
of war, is always delusive and often destructive. The 
reason is as follows : The treasury issues the paper-money 
mainly for the purchase of military stores and supplies, in- 
cluding provisions and clothing for troops. Yet the prices 
of these articles are at once raised by such issues. The 
prices of all things do not rise equally. When the volume 
of money is increased, houses and lands, perhaps, do not 
rise at all, at the beginning ; but articles immediately mer- 



POLITICAL ECOmMY. 151 

chantable, i.e., goods in shops and warehouses, rise in 
price very rapidly. Now, it is these articles, especially, 
which the government goes into the market to purchase. 
Consequently, the treasury, with a larger nominal amount 
of money, finds its purchasing power diminished, and feels 
itself poorer than ever. 

The next step is a fatally easy one. The poorer the gov- 
ernment becomes, the more paper-money it emits ; the more 
paper-money it emits, the poorer it becomes. The most 
probable end is a weltering chaos, involving the utter 
bankruptcy of the treasury and the prostration of industry 
and trade, with untold injury to the community, and the 
highest injustice as between man and man. This was the 
end actually reached in the American Eevolution and in the 
French Revolution, during the last century. In the war of 
Secession, Congress had the unusual courage to stop, when 
the " greenbacks " had reached four hundred million dol- 
lars, and thereafter to raise all the means required, by 
loans or taxes. Enormous evils, however, had already been 
incurred, and the cost of the war vastly increased. 

It is one of the cowardly maxims of current politics, that 
a great war cannot be successfully carried on, by a free 
people, without the issue of government paper-money, to 
'^make the war popular, '^ to "raise prices, ^^ to *' float 
loans," etc. Such a maxim is as false as it is cowardly. 
Paper-money adds nothing to the real resources of a nation; 
while the political virtue of any generous people will, if 
properly appealed to, be found sufficient to command all 
their energies in any war which is waged for national inde- 
pendence or national honor or in defence of important 
rights. The effect of paper-money upon the public body 
is much like the effect of alcohol upon the individual : it 
stimulates, it excites, it too often bewilders and crazes; it 
can never add anything to the strength available for ^ 



152 POLITICAL ECONOMY, 

severe and protracted contest. If there is ever a time when 
a nation needs its full, collected, vigor, with a steady 
pulse, a calm outlook, a firm hand, a brain undisturbed by 
the fumes of this alcohol of commerce — paper-money — it 
is when called to do battle for its life against superior 
force. 

138. Scaling Down Debts. — In all free governments, or 
governments much subject to popular impulses, a second 
danger of over-issue arises from the appetite which is en- 
gendered for further emissions, to ^^ scale down debts, ^' or 
to ^^make trade good.^^ After a people have once felt the 
intoxicating effects of excessive paper-issues, in enabling 
them to pay their debts in money which is worth less, per- 
haps much less, than that in which the debts were con- 
tracted, there is aroused a strong and urgent appetite, 
sometimes a ferocious passion, for new emissions, which 
shall still further reduce the value of money and still further 
rob the creditor class. Beneath the smooth and respect- 
able surface of human society, in its ordinary moods, lie 
passions of the most violent and destructive nature. It 
is the task of the statesman to keep these from breaking 
forth and devastating society, while he trusts to the insen- 
sible operation of moral forces gradually to impair their 
strength and ultimately to supplant them by virtuous and 
beneficent motives. Scarcely any cause so breaks-up the 
restraints under which the bad impulses of human nature 
are held in check, and lets loose upon society such a horde 
of villainous passions, as does the issue of paper-money, 
when it has once passed the bounds of prudence. 

Few communities known to history possessed more of 
sterling virtue than the early colonies of New England ; yet 
these people, once infatuated and intoxicated by bad 
money, fairly rioted in dishonesty, in the treatment of 
public and private creditors. It required an immense effort 



POLITICAL EGONOMT, 163 

of public virtue to finally turn tlie scale in favor of honesty; 
but this was accomplished, and, by an act of wise states- 
manship, the very roots of this poisonous plant were dug 
out.* Ever since that time, the commercial credit and the 
financial honor of New England have been nobly main- 
tained; and the reward has been found in flourishing trade 
and expanding manufactures. If it is the true task of 
statesmanship to so order society, to so dispose its forces, 
to so organize its forms, as to hold the bad impulses of 
human nature in check, while giving full scope and free 
play to those motives which seek at once individual happi- 
ness and the public welfare, then it may boldly be said 
that there is no act so unstatesmanlike as to institute the 
regime of government paper-money. 

139. Political Money at its Best. — We have shown two 
grave dangers which beset political money, and from 
which it cannot hope to escape. We have seen that the 
danger of over-issue never ceases to threaten such a money. 
Its path winds all the way along the edge of a pi'ecipice. 

Let us now inquire what could be claimed for political 
money, at its best. Would it be a good money, even were 
the danger of over-issue, arising from the two causes indi- 
cated, to be altogether removed ? I answer, such a money 
could never be a good money, because it has no automatic 
regulation of its amount, to keep it on a level, as to value, 
with the money of other countries. It has been said that 
government paper-money has no cost of production. We 
are now to note that its circulation is limited to the country 
in which it is issued. In common phrase, it is non-export- 

* The period of New England history above referred to, is com- 
prised between the second disastrous expedition against Canada, 
1710, and the Revolutionary war. Massachusetts rid itself of paper- 
money in 1747, under the enlightened leadership of Governor 
Hutchinson. 



154 POLITICAL EOOmMT. 

able. To see the full bearings of this fact, we need to go 
back to metal-money, and inquire how its total volume is 
distributed among the several countries which take part 
in the commerce of the world. 

140. The Geographical Distribution of Metal-money. — It 
would be a very difficult question to answer, how much 
money a given nation requires. Even were the amount 
of its annual production known, and the amount of its 
annual trade, we should not have the means of answering 
this question. The amount of money required to do a 
certain amount of trade depends upon the extent to which 
the banking system is organized (par. 118); upon the 
degree to which cancellation of indebtedness (par. 120) is 
carried ; and also upon the '^^ rapidity of circulation.^^ The 
last point is of great importance. In some communities, a 
dollar will be used to pay debts or make purchases, as 
many times in the course of one week, as in the course of a 
month in other communities. '^ The nimble sixpence 
does the work of the slow shilling. ^^ To say that a country 
needs so much money because it has so much trade, would 
be like saying that a railroad needs so many cars to trans- 
port ten millions of bushels of grain from one place to 
another, without knowing how often the cars will be able 
to make the round-trip. 

Fortunately, it is not necessary that any one should know 
how much metal money any particular "country requires. 
If one country has a larger share of the metal money of the 
world than is for its own good and for the good of others, 
the excess will be drained away insensibly, and without any 
one taking care concerning it. A country should, for its 
own good and for the good of others, have in circulation 
money enough to keep its prices on a level (cost of trans- 
portation being taken into account) with prices in other 
countries. Any excess above this amount is called Infla- 



POLITICAL ECONOMY 155 

tion. Now, if the money of a country be inflated, prices 
must rise. If prices rise, that country becomes a bad coun- 
try to buy from, since all persons naturally desire to buy in 
the cheapest market. For the same reason, that country 
will be a good country to sell to, since all persons are moved 
to send their goods to the dearest market. Since, there- 
fore, the country is both a bad country to buy from and 
a good country to sell to, its imports will increase and 
its exports diminish. As the immediate consequence of 
this, metal-money will have to be sent out of the country, 
to pay the difference between the value of the goods it has 
sold and the value of the goods it has bought. 

This process will begin even before the shrewdest banker, 
or financier, or statistician, could have told that the money 
of that country was in excess. You have seen a carpenter 
or mason lay a spirit-level upon a beam, or upon a wall. If 
the surface is not exactly horizontal, the little bubble under 
the glass runs out of sight, although the departure from the 
horizontal be so slight that no eye, however trained, could 
detect it. So, in the case of a country having metallic 
money in excess, the exportation of gold, or silver, begins 
before the wisest man in the land could have told that there 
was inflation. This process continues just as long as the 
excess remains ; and it ceases, of itself, just as soon as the 
excess is removed. 

It is by such a process that metal-money preserves its level, 
the world over. No man has occasion to take care for it. 
There is no need of setting up machinery to do this work. 
There is no danger of any mistake about it, either in 
doing too much or in doing too little, either in beginning 
too early or too Jate. The highest good of each country re- 
quires that it should have just that amount of money which 
will be brought to it, and kept in it, by the operation which 
we have described. To have more money, would make 



156 POLITICAL ECONOMY. 

that country a bad market to buy in. To have less money, 
would retard and embarrass the exchanges which the people 
of that country have need to make. And what is thus for 
the good of each country, by turns, is for the advantage of 
all countries, as a whole, enabling the required exchanges 
to be made with the greatest ease and confidence. 

141. The Regulation of Bank-money. — We have shown, 
in the preceding paragraph, that the geographical distribu- 
tion of metal-money, among the several countries of the 
world, is affected insensibly, automatically and surely. But 
how is it with countries having bank-money ? Can bank- 
money be exported, in case of excess ? I answer, no. 
Bank-money is not subject to export. It is true that a 
few Bank of England notes are occasionally carried to the 
continent of Europe. This, however, is not because such 
notes are in excess at home; but because a few travellers 
choose to take a portion of their funds with them in that 
shape, knowing that the bankers in the largest cities of the 
Continent are always glad to have some Bank of England 
notes on hand. Such an exception we may safely disre- 
gard; and say that bank-notes are non-exportable. How, 
then, it will be asked, can bank-money be subject to auto- 
matic regulation of amount ? 

The process is as follows : If bank-notes be issued in ex- 
cess, prices will rise, and that country will consequently 
become a bad country to buy from and a good country to 
sell to. Exports being, by this cause, diminished, while 
imports are increased, money will have to be sent out of the 
country, to pay the balance. Since the bank-notes cannot 
go, a draft will be made upon the specie in the " reserves^' 
of the banks. In other words, there will be a '^ drain^^ of 
gold, or silver. If the law, as is sometimes the case, for- 
bids a bank to keep-out more than a certain proportion of 
notes, or bills, to the gold, or silver, in its vaults, the loss 



POLITICAL ECONOMY, 157 

of the specie will require the banks to ^' contract their cir- 
culation/' accordingly, and thus the excess of notes will 
be removed. If, on the other hand, the law makes no such 
requirement, the bank-officers will be obliged, in the exer- 
cise of ordinary prudence, not to send back into circulation 
the notes that are first paid into the bank, in the course of 
business. These notes the bank-officers will prefer to lay 
away in their vaults, until the specie they have lost shall 
come back again. 

Of course, it will be seen that this action requires the 
exercise of ordinary prudence on the part of the bank-offi- 
cers. If these are reckless, they may wait until they get 
a second warning, in the form of still another '^^ drain'' 
upon their reserves. Speaking broadly, however, we may 
say that, if the banking system of the country is in good 
hands, the amount of bank-money is almost as surely and 
quickly subject to regulation as is money of gold or silver. 

142. Political Money not Subject to Automatic Regula- 
tion of Amount. — On the other hand, political money is not 
subject, in any degree, to automatic regulation of supply. 
Such money, it is true, is never likely to be deficient in 
amount. The needs of the treasury and the clamors of the 
trading, and especially of the speculative, class, may be 
trusted to prevent that result. The danger is all on the 
other side, viz., that such money will be issued and main- 
tained in excess, since, if, from any cause, at any time, too 
much of such money be put out from the treasury, there is 
no natural or commercial drainage, by which the excess shall 
be removed. A country which has such a money is like an 
interior district which has no outlet through the rivers and 
thence to the ocean. If too much water falls upon such a 
district, it turns to swamps or quicksands, according to the 
nature of the soil. A country where an excess of govern- 
ment paper-money has been issued becomes a swamp or a 



158 POLITICAL ECONOMY, 

quicksand, commercially and industrially speaking. It be- 
comes at once a bad country to buy from, a good country to 
sell to, because prices are high there; but this fact does not 
tend to remove the excess, because such money is not avail- 
able for export, to pay balances. 

How, then, can such a country pay the balances due to 
its unfavorable trade ? Why, by gold, which it purchases, 
for this purpose, from other nations. As soon as any 
paper-money country is driven into this strait, we have the 
phenomenon of a Premium on Gold.* This is an almost 
inevitable accompaniment of government paper-money. 
Since some gold must be had, for the purpose of paying 
foreign balances or for use in the arts, gold, which in that 
country has ceased to be money, is bought and sold, like 
any other commodity ; and its price (in paper-money) rises 
and falls like the prices of other commodities. The pre- 
mium on gold may be high or it may be low; but some 
premium, greater or less, is almost certain to exist wher- 
ever government paper-money is the sole money of the 
people. 

143. The Present Situation in the United States. — The 
last phrase of the preceding paragraph intimates a qualifi- 
cation that must be made, whenever government paper- 
money is spoken of. At the present time we have, in the 
United States, government paper-money, popularly known 
as ^' greenbacks. *' Why, then, is there not a Premium on 
Gold ? I answer, because the amount of such money has 
been fixed bylaw at a point far below the amount of money 
which the people of the United States require. In addition 
to the greenbacks, we have 

1st. Bank money, in large amount ; 

* Or on silver, if that be the money in which foreign balances are 
paid, as, for instance, in the East Indian or Chinese trade. For cou- 
venience, we speak, here, only of gold. 



POLITICAL ECONOMY. * 159 

2d. Gold and silver, coined and uncoined, in the hands 
of brokers and dealers in bullion; 

3d. '^Gold certificates'^ and '^^ silver certificates," in vast 
amount, which the Treasury has issued, and for which it 
holds the actual gold and silver, dollar for dollar, in the 
'' sub-treasuries" at New York, Boston, Baltimore, New 
Orleans, San Francisco, and other places, ready to be paid 
out to whoever may present the '^^certificates." 

If, now, the aggregate amount of all these kinds of 
money should come, at any time, to be in excess, the 
'' drain" would come either upon the gold and silver in the 
hands of brokers and bullion dealers, or else upon the gold 
and silver held by the government for the redemption of 
the "certificates." Long before the drain should get down 
to the government paper-money, any excess in the aggre- 
gate amount of money within the United States would have 
been corrected. 

What, then, it may be asked, can be the objection to 
government issuing a certain, limited, amount of this politi- 
cal money ? I answer, that, if the amount to be so issued 
is fixed far below the lowest point to which the money of 
the country could ever be reduced, even at its lowest ebb, 
the only objection to its issue is found in the possible dan- 
ger that, when both government and people have become 
thoroughly accustomed to this kind of money, its amount 
will readily be increased, in case of financial disaster or 
upon the occurrence of war. A country which has such a 
money is very likely to be drawn into the abuse of it. A 
country which has not such a money is not likely to resort 
to it, except in a great exigency. 

144. Effects of a Gold Premium upon Trade. — Let us 
now return to the case of a country, the government of 
which has undertaken to furnish its people with all the 
nioney they require, in the form of inconvertible papei\ 



160 ' POLITIGAL BG0N0M7. 

Let it, for the sake of argument, be assumed that war will 
not occur, to drive the government to over-issues ; and that, 
in time of peace, both government and people are so wise, 
so honest, and so brave, that they will not purposely inflate 
this paper-money under any temptation. Upon this series 
of favorable assumptions, what would be the effect of such 
money upon trade ? 

It has been said that such a money is not likely to be de- 
ficient in supply. Both the needs of the Treasury and the 
demands of the trading, and especially of the speculating, 
class, will be certain to prevent this. But why should such 
a money become excessive, if neither the government nor 
the people desire over-issue? I answer, because there is 
no man, and no body of men, wise enough to tell Just how 
much money, no more and no less, the trade of a nation 
requires, at any given time. Metal money is in a continual 
state of flux, now flowing in this direction, now in that, ac- 
cording to the needs of trade. One time, the West requires 
a larger share of the nation's money ; at another time, it is 
the East. For weeks, every steamer which leaves New 
York takes more or less gold to Liverpool ; then, again, it 
is the incoming steamers which carry gold. It is by the 
incessant movements of money, that trade remains steady. 
If money is to become stagnant, trade must take up the 
fluctuation ; and, by the inevitable influence of specula- 
tion, that fluctuation becomes excessive, extravagant, per- 
nicious. 

If we were to suppose that, upon any given day, the 
amount of inconvertible paper-money in the country were 
exactly what the good of trade required, that is, exactly 
the amount of metal-money which would be in circu- 
lation, it would be, in the highest degree, probable that, in 
a very short time, a few weeks, perhaps a few days, that 
amount would become excessive. If it were metal-money. 



POLITICAL ECONOMY, 161 

the excess would be insensibly and automatically drained 
away, as we have seen. Since paper-money cannot be regu- 
lated in this way, a premium on gold will at once appear. 
The moment a premium on gold appears, gold becomes the 
subject of speculative dealing. That speculative dealing early 
becomes intense and furious. The whole amount of gold 
in the country is perhaps sold over and over again* during a 
single week, or a single day. Under the influence of this 
cause, the premium on gold soon ceases to afford any meas- 
ure of the excess of paper-money. The premium goes up 
and down, like a small boat on a tempestuous sea. Now 
the ^^ bulls" have it ; now the " bears. "f 

What effects upon trade are produced by the fluctuations 
of the gold premium ? We shall best show this by illustra- 
tion. A merchant in New York sells goods to Liverpool, 
on sixty days' credit. Those goods the merchant has 
bought with paper-money : he is to be paid in gold. 
Perhaps at the time the sale takes place the premium on 
gold is twenty per cent. When the sixty days have ex- 
pired, the premium on gold may be thirty per cent, or it 
may be only ten. In the one case, the merchant has real- 
ized a great gain, which he has done nothing to deserve; in 
the other case, he suffers a large loss, through no fault of his 
own. It has already been stated (par. 104) that unearned 
gains do not help men as much as undeserved losses hurt 

* Not sold and delivered; but sold speculatively, perhaps by men 
who have no gold, to men who want no gold. Such buying and 
selling is called speculative. Those who buy and sell in this way, 
being neither producers, traders, nor consumers, are simply engaged 
in gambling. They bet upon the future price of the article in which 
they deal. 

fin the phrase of the market, the "bulls" are those dealers who 
are working for a rise in prices, so that they can sell to advantage ; 
the "bears," those who are working for a fall of prices, so that they 
can buy to advantage. 



162 POLITICAL ECONOMY, 

them. If human history teaches anything, it teaches this, 
unmistakably. 

Moreover, in such a state of things, not only is trade 
subject to unearned gains and undeserved losses, but the 
whole trading community becomes animated by a highly 
speculative spirit. Merchants, instead of confining them- 
selves to prudent, careful dealings, trying to save a little 
here, and make a little there, buying judiciously and sell- 
ing judiciously, remaining content with a reasonable profit, 
and studying patiently the real demands of consumers, 
launch out into enterprises of a grand and startling charac- 
ter ; become indifferent to little savings, contemptuous of 
small gains ; and operate rather with reference to the antici- 
pated fluctuations of the gold premium, than with reference 
to supplying the actual, current wants of consumers. Soon, 
'' combines" and "corners" come in to produce great waves 
in the markets for produce, which swallow up the frail barks 
of petty dealers, and wreck the small fortunes which have 
been accumulated through years of patient toil. All trade, 
is in its nature, more or less speculative, even with a good 
money; but i3ad money and a fluctuating gold premium 
make trade little better than gambling. 

145. The Effects upon Industry. — A nation might per- 
haps put up with the unfavorable effects of paper-money 
upon the trading class, were it not for the inevitable effects 
which are produced upon industry. Manufacturing, under 
such impulses from trade, also becomes highly speculative; 
production gathers itself into great waves; producers become 
dissatisfied with the proper fruits of care and pains and 
labor, and fix their eyes upon the glittering prizes which 
are awarded to lucky "hits" and momentary successes. 

146, The Effects upon the Consumption of Wealth. — 
Light come : light go. Those who, in such a state of in- 
dustry and trade^ reap large gains, too often spend them 



POLITICAL ECONOMY, 1^3 

foolishly, recklessly, perhaps wantonly; while those who 
have suffered from the injustice which the regime of paper- 
money always causes, in so great a degree, eat their scanty 
bread, made hitter by the sense of wrong and undeserved 
hardship. A period of paper-money inflation always sees 
great changes in the consumption of a people ; and those 
changes are almost all away from what is wholesome, mod- 
erate, and temperate, toward what is extravagant, foolish, 
or pernicious. 

In such a state of industrial society, it is always the 
poorest and the humblest, those who have least to spare, 
those who are farthest away from the sources of power, 
who suffer most, and who have least the opportunity for 
repairing the wrongs done to them. Rightly did Daniel 
Webster call such money ''the most effectual of inventions 
to fertilize the rich man's field by the sweat of the poor 
man's brow.^' 



CHAPTER XVI. 

PROTECTION OR FREE TRADE. 

147. The Territorial Division of Labor. — In Chaptei 
VII, we showed how the division of labor comes about, 
and indicated some of its more important advantages. 
The same principle which divides the population of a vil- 
lage or a small district into hunters and herdsmen, sailors 
and fishermen, grain growers and fruit growers, carpenters 
and blacksmiths, butchers and bakers, peddlers and shop- 
keepers, lawyers and doctors, is carried out, in greater or 
less degree, to large districts, states and nations. Some 
districts, some states, give themselves mainly to agricul- 
ture, in one or another branch; some resort chiefly to fish- 
ing, shipbuilding and navigation ; some, to mining and to 
the manufacture of metals from the ores ; some, to textile 
manufactures or to the production of pottery or porcelain 
from clays. 

148. Soil and Climate. — There are three principal sets of 
forces in the territorial division of labor. These are 

(1) Soil and climate. 

(2) The industrial adaptations of the people. 

(3) The accumulation of capital. 

The chief controlling force is found in soil and cli- 
mate, including all those elements which may be called 
geographical. 

Soil and climate have always a powerful influence upon 
the occupations of any community, although that influ- 
ence is much greater in respect to certain classes of occu- 



POLITICAL EG0N0M7. 165 

pations than in respect to others. It is in the mining in- 
dustries that the force of this cause reaches its maximum. 
Nature here fixes the limits within which alone industry 
can be prosecuted ; although men may or may not take 
advantage of the opportunities offered. Generally speak- 
ing, also, it may be said that in mining districts there is 
seldom any considerable variety of occupations. Neither 
manufactures nor agriculture are likely to grow up, on any 
considerable scale, in connection with mining, on account 
of the rugged and inaccessible, and often sterile, nature of 
the regions concerned. 

Agriculture comes next to mining, in the degree to 
which the constraints of nature are felt. In regard to 
some crops the lines are drawn so strictly that man has 
little choice given him, except only the choice of not pro- 
ducing at all. In certain narrow districts along our south- 
ern coast, rice is raised, and nowhere else in the United 
States. This crop can only be cultivated on lands which 
are periodically flooded by water, either naturally or by 
artificial means. The temperature of the growing season 
must, also, be high. In New Jersey and in certain other 
Northern States, are small districts which are almost wholly 
given up to the raising of cranberries for the market. 
The crop is a profitable one ; but it can only be raised 
under peculiar conditions as to soil and water. There is 
a well-defined honey-producing district in California. 

Hops are raised to a great extent in certain districts of 
New York and Wisconsin. Cotton is raised almost wholly 
south of a certain parallel of latitude, because this plant re- 
quires both heat and moisture, in an exceptional degree, for 
its cultivation. Yet the human will and the progress of the 
agricultural art have something to do with determining 
the seats of cotton cultivation. Cotton is now largely 
raised on high lands in South Carolina and Georgia, 



166 POLITICAL ECONOMY, 

where, before the War of Secession, no one thought of 
planting it, except in small patches. Tobacco can be 
raised either at the North or at the South, in Connecticut 
as in Kentucky, and this plant has no very clear relations 
to the amount of moisture ; yet certain districts are found, 
upon extensive trial, to be so much better suited than 
others to the production of a proper quality and quantity 
of this plant, that the tobacco region of the United States 
may be said to be fairly well defined. Here, as in the case 
of hops, we have a crop which fluctuates greatly in price 
from year to year. Such a crop is likely to be less widely 
spread, for the same quantity of product, than a crop which 
is steadier in price. Wheat is grown almost wholly north 
of the thirty-sixth degree of latitude ; while Indian corn, 
or maize, can be cultivated through a much wider range of 
country, giving the inhabitants, therefore, a larger choice 
as to the fields which shall be sown for this crop. 

When we come to manufactures we reach a department of 
production where, it might be supposed, the human will was 
almost supreme, as regards the points of location; yet, even 
here, the influence of geographical conditions is very strong. 
For example, it is to the remarkable groups of water-powers 
afforded by its rivers, that New England owes much of its 
development in manufactures. Those rivers, falling down 
from the mountains at the north, make their way to the sea 
over a succession of irregular terraces. Whenever a stream 
plunges from one terrace to another, it places an enormous 
force at the disposal of men, for manufacturing purposes ; 
and, inasmuch as the rocks of this region are very hard, 
the water -fall is subject to but little change from age to 
age. Sometimes, the river takes its last plunge straight 
down into tide-water, so that vessels can load the grain or 
the lumber or the cotton cloth almost from the mills. 

On the other hand, there are extensive parts of the 



POLITICAL EGOmMT. 167 

[Jnited States which are so generally level that the rivers 
flowing to the sea create almost no water-powers ; while, 
even in some elevated regions, the underlying rock is so 
soft as to be speedily worn away by the action of the water, 
producing, instead of a few sharp falls, a succession of rap- 
ids and shoals. Some of these rivers, too, take their last 
plunge at a distance of one hundred, two hundred or even 
three hundred miles from the shore, so that, if mills were 
to be erected there, the vessels which were to bring away 
the produce, or carry up the materials, would have a long 
and tedious voyage to make. 

Climate, moreover, has not a little to do with success in 
certain branches of manufactures. There are parts of 
Trance which are supposed to have a great superiority in 
the production of silk goods of brilliant colors and delicate 
shades, by reason of their prevailing climate. Some dis- 
tricts, as in England, have just about that degree of moist- 
ure in the air, throughout the year, which is most favora- 
ble to the spinning of cotton. In still other regions, the 
highly electrical condition of the atmosphere is unfavorable 
to mill-work. 

Upon all out-door mechanical employments, the com- 
parative severity or mildness of the weather has a great in- 
fluence. In some countries, a stone or brick mason can 
perform his task, with but little interruption, through the 
entire year; in other countries, the building season is prac- 
tically limited to eight months ; in others, to six months or 
even five. 

While the soil has little direct influence upon manufac- 
tures, it has yet an important secondary influence, as pro- 
ducing, or not producing, the materials of manufacture. 
A region in which cotton is grown has a certain advantage, 
other things equal, in the production of cotton goods. The 
manufacture of porcelain and pottery is usually carried on 



168 POLITICAL ECONOMY, 

where the clays suitable for this industry are found most 
freely and of the best quality. Ores are generally smelted 
at or near the mine. The existence of coal in any district 
is an enormous aid to manufacturing industry. 

The foregoing conditions^ however, are subjectyin a high 
degree, to the will of man and to the progress of the indus- 
trial arts. England imports cotton from America, from 
Egypt and from India, and makes it into cloth which she 
sends back to the very countries from which the staple 
came. In many instances, ores of iron are carried hundreds, 
and ores of copper even thousands, of miles, to be smelted. 
Districts which are destitute alike of natural water-power 
and of coal, have, notwithstanding, achieved great success 
in manufactures. 

149. Industrial Adaptations of the People. — Far less 
conspicuous to the sight, but, in the case of many industries, 
of greater influence, are industrial adaptations, either inher- 
ited or acquired by education. Strong as are the con- 
straints of geographical conditions, there is that in the 
spirit and mind of man which can make the wilderness 
blossom like the rose, which can redeem a land from the 
sea, which can cut paths for commerce where nature has 
interposed the mightiest barriers, which can build up man- 
ufactures in remote and desolate places. Some of the 
greatest achievements of industry have been made under 
circumstances the most forbidding and with means the most 
inadequate. Any land, however sterile, which possesses 
an energetic, skilful and enterprising people, will, in the 
course of a few generations, be richer than any other coun- 
try, however bounteously endowed by nature, whose people 
are thriftless, ignorant and inert. 

But it is something more than this which we mean when 
we speak of the industrial adaptations of a nation. Of two 
highly enterprising, intelligent and skilful peoples, each 



POLITICAL ECONOMY, 169 

will haYe, by reason of something in its past^ certain special 
adaptations, of an industrial character, which the other 
has not. One nation, like Erance, will easily achieve a 
remarkable success in the production of goods which have 
grace of form, beauty of color and elegance of finish. 
Another nation, like England, will be unsurpassed in the 
production of goods where durability and substantial ser- 
vice are prime requisites. Another nation, still, like the 
United States, will instinctively turn itself to the produc- 
tion of articles demanding great ingenuity, mechanical 
insight, and a ready comprehension of the relation of parts 
to a whole. The agricultural machines, the locks and safes, 
the musical instruments, the sewing-machines, the rifles 
and pistols, the scales and balances, of such a nation, will 
be sent to the ends of the earth. Some peoples, again, 
have, in a high degree, the patience, the foresight, the care- 
fulness and the delight in animal life, which give them a 
remarkable success in breeding, raising and tending cattle 
and sheep, swine and poultry, and, consequently, in pro- 
ducing those forms of wealth which are derived from such 
sources. 

The industrial adaptations of a people sometimes become 
very special, indeed. Partly from inherited instincts, 
partly through secret processes handed down by their fore- 
fathers, the people of a certain city may have a marvellous 
skill and taste in producing a certain, single kind of goods, 
be it sword-blades that can be bent double without break- 
ing, or toys of infinite delicacy and variety, or carpets 
and shawls whose patterns and dyes are the admiration of 
the world. 

150. The Accumulation of Capital. — In addition to the 
foregoing forces, which control or influence the distribution 
-of industries, an important force is found in the accumu- 
lation of capital. Given, two peoples exactly alike in all 



170 POLITIOAL ECONOMY. 

their qualities and characteristics, occupying countries 
similarly endowed by nature, but one of them older in 
settlement, and richer in accumulated wealth than the 
other, there will inevitably be important differences in the 
avocations of those peoples. They will have much in 
common; there will be much that is peculiar to each. 
The greater capital of the older country will not merely 
enable its people to produce more of the same kind of 
things ; it will enable and almost require its people to pro- 
duce things of a different kind. There are certain indus- 
tries which almost wholly belong to long-settled countries. 
Moreover, the accumulation of capital tends strongly to 
the local concentration of certain kinds of manufactures. 
The rule, " to him that hath shall be given,^' applies greatly 
to manufacturing industry. There is a curious tendency, 
in some branches of business, for producers to herd to- 
gether. This is even seen in trade. If you go to a large 
city, you will find the leather dealers, the wool merchants, 
the sellers of sewing-machines, or musical instruments, 
close together. One might suppose that the contrary 
would be the case : that a merchant would prefer not to 
have his competitors and rivals near him, and would place 
himself at a distance from them. This is so, to a large 
extent, in retail trade ; but in wholesale trade the rule is 
the other way. So it is with the great manufactures : long 
experience has shown that one derives a benefit from the 
presence of others. This is partly due (1) to the fact that 
individual manufacturers can, in this way, acquire an earlier 
and more exact knowledge of what is going on in their 
lines of production ; in part, (2) to the concentration, 
within a limited area, of the laborers skilled in that kind 
of work, so that any manufacturer can readily increase his 
laboring force ; in part, (3) to the fact that the shops which 
supply the materials for that kind of manufacture, and the 



POLITICAL ECONOMY. 171 

works which make its peculiar machinery, come to be lo- 
cated near by ; in part, and perhaps the greater part, (4) 
to the fact, that when a region contains many factories of 
a certain kind, it comes to be known as the centre, or " head- 
quarters,'' of that manufacture ; merchants and agents 
visit it in large numbers ; and the goods produced there 
acquire a special name and reputation. 

The force of the foregoing cause is very great : so much 
so that, with regard to certain manufactures, it may be 
said, it is not worth while for a country or a region to pro- 
duce at all, unless it is to produce a great deal : to have 
any factories of that sort, unless it is to have many. 

151. Neighborhood Industries.— Precisely the opposite is 
true of certain industries which we call '^neighborhood 
industries.'' It is of the very nature of these, that they 
should be scattered widely over the country. 

Among these industries may be reckoned most of the 
ordinary mechanical trades. The carpenter, the black- 
smith, the plumber, the house painter, the paperer, the 
glazier, the brick and stone mason, must do their work on 
the spot where the product is to be used or consumed; aod 
these trades, taken together, comprise a large part of the 
mechanical labor of even the greatest industrial nations. 
There are more carpenters in the United States than per- 
sons engaged in the iron manufacture, or in the cotton 
manufacture, or in the woollen manufacture. Again, the 
building of roads, canals, and railroads, and largely, also, 
the construction of bridges, must be performed on the 
spot. A railroad cannot be built in one country and ex- 
ported to another for use. The skilled and unskilled labor 
required for the operation of a railroad, has to be employed 
in the place where the service is to be enjoyed. Locomo- 
tives and cars may, indeed, be built at a distance; but a 
vast amount of repairs is constantly to be done near to the 



172 POLITICAL EGONOMT. 

track upon which the locomotives and cars are used. 
There are, also, some branches of manufactures, proper, 
which strongly tend to be scattered over the face of thfi 
country, such as the making of heavy wagons, coarse fur- 
niture, and plain brick. 

Such industries as those we have enumerated, constitute 
an important exception to the rule that manufacturing in- 
dustries tend to local concentration. When, for example, 
we say that a country or a large region, possessing a rich 
soil and favorable climate, is mainly agricultural, we must 
bear in mind that this country or region will still have, in 
the forms above mentioned, a great deal of mechanical in- 
dustry. 

And it is also to be noted, as a most important considera- 
tion, that, out of these primitive mechanical industries, the 
higher, the finer, the more complicated branches of manu- 
facture tend to grow up, just as fast as the necessary skill 
and capital are attained. The machine shop follows 
the blacksmith's shop, in natural order; the factory that 
has been turning out rude farmers' and pioneers' wagons 
and carts, comes, in time, to make the coach and the gen- 
tleman's drag; shops which were built only to repair arti- 
cles brought from a distance, at last undertake, slowly and 
cautiously, to make those articles themselves. In these 
and similar ways, the ^'^neighborhood industries" become 
'^ plantations" of the great manufactures, just as single 
trees, set down here and there over a region, tend to form, 
first, groups of trees, of their own kind, then groves, then 
forests. 

152. Advantages of the Territorial Divison of Labor. — 
We have, thus far in the present chapter, undertaken to 
describe, of course very rudely, the process by which the 
territorial division of labor takes place. The economic 
advantages resulting therefrom are so clear that they scarce- 



POLITICAL EOONOMY. 173 

ly need to be mentioned. Each country, devoting its ener- 
gies to those forms of production for which it is best fitted, 
alike by its geographical endowment and by the skill, tastes, 
and habits of its people, at once does that which is best for 
itself and best for mankind. The good of each serves the 
good of all. While each nation develops its industry along 
the line of its own peculiar powers and adaptations, inter- 
national trade brings all the nations together, in exchanges 
which are mutually beneficial. Each, doing that which it 
can do best, thereby contributes in the highest degree to 
the welfare of others ; and in its turn, through a fair ex- 
change, receives back articles of necessity, of comfort, or of 
luxury, which it could not have produced except through 
a greater, perhaps a vastly greater, outlay of labor and 
capital. Freedom of production within the nations, and 
freedom of trade between the nations, is the proper general 
condition of human industry. 

153. "The Encouragement of Manufactures." — It has, 
however, been strongly held, by many persons, that, in a 
new country, having as yet but small capital, something 
may properly be done by law, to encourage the growth of 
manufactures, instead of leaving this altogether to the 
interest and the " initiative ^^ of individual producers. It 
has been held, that, by imposing *^^ customs duties " upon 
foreign articles, in certain lines, ^' a start " might be given 
to the production of these articles, which, after a brief 
term of such ^^ protection," would be produced to advan- 
tage. It is alleged, in support of this opinion, that, in 
such a country as has been described, conditions might, in 
general, be favorable to the production of certain articles, 
and yet, on account of timidity or want of foresight on 
the part of capitalists and manufacturers, their production 
might be long delayed; whereas, a little impulse from the 
government, a brief term of protection, might suflSce to 



174 POLITICAL ECONOMY. 

bring such industries into being and to support them 
through the time of trial, experiment, and large, initial, 
outlay for plant and machinery. 

Such an opinion is perfectly rational. Capitalists and 
manufacturers are often timid, often mistaken, often blind 
to their own true interests. It is conceivable that a coun- 
try, in which capital was at the best scarce,* might be on 
the verge of a successful career in a certain line of pro- 
duction, and yet not enter upon it, for the reasons indi- 
cated. A law which imposed duties upon articles, in this 
line, might furnish the impulse needed. While many of 
the results of so-called protection are subject to doubt and 
dispute, I believe that instances of the successful applica- 
tion of this policy are to be found in our own history and 
in that of other countries. 

154. The Possible Disadvantages of the Protective Sys- 
tem. — Against whatever advantages may be deemed likely to 
result from the successful introduction of certain branches 
of manufacture, at a date earlier than that at which they 
would have appeared, but for protection, are to be set two 
things. 

(a) The instances of failure. If capitalists and manu- 
facturers are fallible, so also are governors and legislators. 
If capitalists and manufacturers are selfish, governors and 
legislators are likely to be moved strongly by sectional or 
partisan interests. The history of protection abounds in 
gross mistakes and grave misadventures, in the attempt 
to set-up industries artificially by force of law. The 
silk duties in England and the hemp duties in the 
United States are striking examples of such failures. It 
is, of course, impossible to put into figures the mischief 
done, whenever the policy of encouraging manufactures is 

* This is an essential point. When capital is abundant, capitalists 
are almost too ready to try new things. 



POLITICAL EGONOMY. 175 

wrongly applied. Even where the failure is not total and 
final, i.e., where at last the industry becomes established, 
it may still be true that its premature establishment has 
cost more, in waste of labor and capital, than the industry 
will ever be worth to the people of the country. 

{h) The undue continuance of protective duties. Per- 
haps the greatest objection to the putting-on of protective 
duties is the difficulty of taking them off. At the outset, 
whenever protection is asked for an " infant industry," it is 
invariably asserted that this will be required for but a short 
time. Such has been the theory upon which almost every one 
of the protected industries of the United States has been 
started. As a matter of fact, however, the time seldom comes 
when those who represent a protected industry are willing 
to admit that governmental assistance is no longer needed. 
On the contrary, it has been the experience of the United 
States, with but few exceptions, that the protected indus- 
tries have from time to time demanded higher and still 
higher protection, and that with increasing urgency; while 
against any proposed reduction of duties, all concerned 
struggle with the utmost vehemence, filling the public press 
with their outcries, arousing sectional prejudice and 
passion, and producing apprehensions and alarms which are 
exceedingly injurious to production and trade. 

165. The Balance of Advantage and Disadvantage.— We 
have seen what is the possible advantage of a protective 
policy, at its best, in promoting the introduction of certain 
branches of manufacture into countries which are ripe for 
them, at an earlier date than that at which they would other- 
wise have appeared. We have noted, also, the possible dis- 
advantages of a protective system, first, through the mistakes 
of legislators and governors in making choice of the indus- 
tries to be protected; secondly, through the passionate re- 
sistance offered by the protected industries to a removal 



176 POLITICAL EGONOMY: 

or reduction of duties. The question, on which side the 
balance of advantage and disadvantage lies, is one which 
every citizen must decide for himself. It is not a matter 
for either mathematical or moral proof. One man will, 
according to his way of thinking, his education, his busi- 
ness interests, or the section of country in which he lives, 
take a very large view of the benefits of protection, and 
treat its possible disadvantages slightingly. Another man 
will, according to his cast of mind and various conditions, 
think it of small importance whether certain branches of 
industry come a little earlier or a little later, but deem it 
an enormous evil that industries should be forced into 
being for which a country is not fitted, or that protective 
duties should be continued upon industries which have 
passed the time when they ought to " go alone." 

The question is one which, as I have said, each one must 
decide for himself ; and, in doing so, it is inevitable that 
he will be profoundly influenced by local and personal con- 
siderations, as well as by inherited opinions and the force 
of education. If he is a wool manufacturer, he will be 
likely to think that wool ought to be free, so that he may 
get his material at a low price. If he is a wool grower, he 
will be likely to think that foreign wool ought to be taxed, 
so that he may sell his crop at a high price. If, on the 
other hand, he is a cotton planter, he will be likely to 
think that both raw cotton and cotton goods should be 
free of duty ; first, because most of his crop is going to 
Europe, anyhow, and hence its price will not be affected 
by any duties which the United States Government can im- 
pose *; secondly, because he and his family and his " hands" 
will have to use a great deal of cotton cloth, which he 
naturally desires should be as cheap as possible. 

* By the Constitution, Congress is prohibited from imposing any 
duties on exports. 



POLITICAL ECONOMY, 177 

If a man is engaged in iron mining, lie is likely to think 
that foreign ore should be heavily taxed. The pig-iron 
manufacturer, on the other hand, is likely to think that 
foreign ores should be free, but that English, Scotch, and 
Swedish iron should be taxed. The manufacturer of bar 
iron and boiler plate, on the other hand, desires to buy his 
pig-iron at the lowest price, no matter where made ; but 
would be glad to be relieved from foreign competition as 
to his own product. 

The formation of a tariff thus becomes a struggle of con- 
flicting interests. How bitter that struggle may be, how 
disgraceful the methods which may be resorted to by the 
contestants, how ready men of good repute may be to 
sacrifice general to sectional or local interests, can only be 
learned by a careful study of the tariff history of the 
United States.* The American Congress is, alike by its 
membership, its organization, and its traditional opinions 
and sentiments, peculiarly ill-fitted to deal with so difficult 
and delicate a matter as the decision, what industries shall 
be protected ; how much protection each of these shall re- 
ceive ; how long that protection shall be continued. 

{a) By its membership, because it is composed of men, 
chiefly lawyers, who have had little training in political 
economy and finance, and, on the other hand, know little, 
practically, of industry and trade. 

{h) By its organization, because its committees are too 
small in numbers and command too little respect for their 
work, so that the most carefully digested bill, when brought 
upon the floor of the House, is at once torn to pieces, in a 
furious rush of all the parties interested. 

(c) By its traditional opinions and sentiments, because 

* The history of the tariff of 1838 is peculiarly instructive in this 
respect. 



178 POLITICAL ECONOMY. 

" log-rolling," * instead of being considered a grave politi- 
cal crime, is too often regarded as a proper legislative 
method : many members holding themselves justified in 
voting for items in which other members are interested, 
upon condition of receiving the votes of those members for 
the items in which they or their constituents are concerned. 
156. The "Pauper Labor" Argument for Protection. — 
In addition to the argument in favor of so-called protective 
duties, for the promotion of manufacturing industry, as a 
temporary policy, there is known to our political literature 
an argument in favor of a protective system, as a perma- 
nent policy, by which a prosperous country, in which wages 
are high and in which laborers are skilful and intelligent, 
shall be cut off from trade with countries in which wages 
are low and in which the body of laborers are ignorant, 
degraded, and spiritless, with a low standard of living and 
without industrial ambitions. Those who advocate this 
permanent system of protection, and support it by what is 
called *^the pauper-labor argument," hold, in effect, that, 
in trade, a sort of economic virus passes from the less fortu- 
nate to the more fortunate country, poisoning the indus- 
trial system of that country. In this view, low wages con- 
stitute a disease which is communicated through the goods 
produced by the laborers who receive such wages, just as 
the plague or the cholera is sometimes imported into Euro- 
pean countries in rags from Smyrna or Alexandria. This 
" pauper-labor" argument for protection, as a permanent 
policy, is one which we shall not be prepared to discuss 
until we have discovered the principles which govern the 
distribution of wealth, to which we now pass. 

* You help me roll my log, and I will help you roll yours. There 
are frequent instances of several " interests," in a legislative body, 
uniting their forces and carrying through each measure by turns. 



PART II. 

DISTRIBUTION AND CONSUMPTION. 



CHAPTER XVII. 
THE PROBLEM OF DISTRIBUTION. 

157. Distribution Defined.— We have defined wealth; 
have seen in what its Production consists ; have considered 
the natural conditions as to land, labor and capital, under 
which that production takes place ; and have sought for 
the laws which govern the Exchange of the wealth thus 
produced. We are now to speak of the Distribution of 
wealth. This term we must carefully define, because it is 
often subject to misapprehension. 

In private conversation, and even by some intelligent 
writers, the distribution of wealth has been spoken of as if 
it were a geographical distribution : the sending of com- 
modities, over land and over sea, from producers to con- 
sumers. It is not in this sense that we use the term. The 
distribution of wealth means the divisio?i of wealth among 
those persons and classes of persons who have taken 'part in 
its production. The geographical element has nothing to 
do with this. It does not matter whether the persons 
among whom a body of wealth is to be distributed, live 
closely together or are widely separated. What we inquire 
about, is the nature of the forces, and the mode of the 
operation of those forces, by which the product is divided 
among those who have taken part in its production. 

158. Distribution in Primitive Society.— The complexity 
and the difficulty of the problem of distribution vary 
according to the stage which industrial society has reached. 
When four hunters go out in company, thinking that 

181 



182 POLITICAL BCOmMT. 

thereby they can best surround and capture their game, 
the question of the division of the spoils is an easy one. 
Probably they agree to take each a fourth share. If, how- 
ever, there is among them one hunter so experienced and 
so skilled that the others k7:iow their chances of great 
game will be vastly better by reason of his being of the 
party, it is likely that this man will claim, and the others 
will readily concede, a larger share. But ir, again, there 
is of the party one who is young and inexperienced, he 
must be content to receive the small share which the others 
are willing to allow him. In this case there would be three 
grades of remuneration : a large share, for the chief ; mod- 
erate shares, for the two trained hunters ; a small, perhaps 
a very small, share for the novice. 

The determination of these several shares would, how- 
ever, not be a matter of much difficulty. Prone as men 
are to quarrel, it is remarkable how readily, with how 
little of jealousy, of friction or of complaint, working men, 
of all races, in all ages, in all occupations, have accepted 
differences of remuneration, based upon manifest differ- 
ences of strength, skill, experience or general intelligence. 
Whatever difficulties, whatever perplexities, attend the 
distribution of the product of industry, very little of this is 
due to those who furnish the labor power. 

If, again, we were to suppose a number of fishermen to 
unite in a venture, we should have the same question raised 
concerning the share of each, according to the degree in 
which he deemed himself, and was by his comrades deemed, 
capable of contributing to a successful result. We should, 
moreover, have the additional difficulty of deciding how 
much of the catch should go to the owner of the boat : 
that is, the question would arise as to the amount to be 
paid, as interest, for the use of certain body of capital (par, 
57). But, even so, the problem of distribution would not 



POLITICAL ECONOMY. 1^ 

be a very difficult one, in an industry so primitive as fishing 
out of a sea which nobody owns. 

If, however, these fishermen were to go into a bay, which 
some other person, not even of their tribe, controlled, the 
question would become not a little complicated. The 
demand for rent, for the right of fishing in the bay, would 
probably arouse more envy and anger than any demand 
previously made. If that demand could not be resisted, it 
would probably be sought to be evaded, in every way pos- 
sible. Perhaps not one of the fisherm.en would think of 
stealing a boat -from a neighbor at night, to do the fishing 
in ; while every one of them, perhaps, would be ready to 
go secretly into the bay, under cover of darkness, in order 
to escape the payment of the required rent. 

Moreover, if there were some great chief, at a distance, 
who claimed a part of the fish taken upon that shore, it is 
probable that all the fishermen would agree to smuggle the 
fish back into their hats, if they could manage to do so, 
without paying this tithe or tax. I mention these last two 
elements of the case, because it needs to be borne in mind, 
not only that the problem of distribution increases in dif- 
ficulty and perplexity, as more and more parties are intro- 
duced ; but also that there are certain shares respecting 
which the great majority of uninstructed men entertain 
feelings very different from those with which they regard 
other shares. We have said that there is seldom any dif- 
ficulty among the laboring class as to the division, between 
themselves, of the total amount which is to go to them as 
a body. There are, however, other shares of the product, 
regarding which a great deal of prejudice exists, and some- 
times a great deal of passion is aroused. 

159. Distribution in Modern Industrial Society. — The 
most complicated case which we could conceive in regard 
to a primitive community, whether of fishermen or of 



184 POLITICAL ECONOMY. 

huntsmen or of agriculturists, would be plain and simple, 
as compared with those which habitually arise in communi- 
ties like our own. Take the case of a cotton factory, pro- 
ducing, in a given time, a million yards of cloth. Here we 
have the following claimants for shares of the product : 

First, those who furnish the labor power required for 
this production ; 

Second, the owner of the land on which the mill stands ; 

Third, the owner of the water power ; 

Fourth, the owner of the mill ; 

Fifth, the owner of the machinery, of the stock of ma- 
terials, and of the working capital used in these operations ; 

Sixth, the employer, who furnishes the business ability to 
carry on production successfully ; who takes the risk of 
making nothing and the chance of making much for him- 
self ; who conducts the negotiations with the various par- 
ties, and organizes all these persons and agents into a pro- 
ductive body ; with whom, finally, it rests to say, what 
shall be produced and how it shall be produced ; of what 
materials, in what forms and styles, to what amount ; to 
whom, at what prices, on what terms of credit, the pro- 
duct shall be sold. 

It is true that more than one of the parts enumerated 
above may be found in the same person. The owner of 
the mill may be also the owner of the water-power ; but then, 
again, he may not be. Very commonly the owners of mills 
do not own the water-power they employ ; but lease it, at 
a certain price, from others. What determines that price ? 
The owner of the land may also be the owner of the mill; 
but this is not necessarily so. Indeed, it is in some coun- 
tries usual to erect buildings upon leased land. The em- 
ployer, again, may or may not be the owner of the mill 
and the machinery; but even if he be, the share he re- 
ceives, as owner of the mill and the machinery, is Just as 



POLITICAL ECONOMY. 185 

truly distinct from the share he receives as employer, as it 
would be were these different persons. 

We have enumerated six claimants upon the product 
of the mill; but, in fact, one of these is not a person but 
a class, composed of the most heterogeneous subjects, who 
will be, among themselves, in very different positions as to 
the claims they can individually make and enforce for por- 
tions of the cotton cloth. There are the superintendent, 
the overseers or foremen, and the clerks and cashiers in 
the office of the mill, all of whom are just as truly laborers 
as the spinners and weavers ; there are machinists and 
highly skilled operatives ; there are porters, doing mere 
heavy work, and operatives of little skill and experience ; 
there are men and there are women; there are adults and 
there are children. 

From the foregoing statements, it will appear that the 
problem., how this great web of a million yards of cloth 
shall be cut up and distributed among these hundreds of 
persons, of such different degrees of skill, strength, and 
intelligence, performing parts so various in the general 
work, is not likely to be a simple and easy one. .Yet he 
who would write on the distribution of wealth must under- 
take to show at least the general principles which govern 
the remuneration of each one of these hundreds of persons, 
in turn : how much the employer shall receive, and why 
he shall receive no more and no less ; how much the owner 
of the water-power is to receive, and why he is to receive 
no more or no less ; how much the owner of the land, the 
able bodied and skilled operatives, the " heavy porter," the 
woman spinner, the nine-year-old ^Mialf timer," is each to 
receive ; and why that remuneration neither will nor can 
be either greater or smaller. 

160. Price as Affecting Distribution. — But we have not 
yet got to the bottom of the difficulties and perplexities 



186 POLITICAL ECONOMY. 

which attend the problem of distribution. We have thus 
far spoken as if there were only one factory producing 
cotton cloth, or, else, as if, of several or many factories pro- 
ducing such goods, all were on a perfect equality as regards 
the conditions of production. But since no two fac- 
tories are really on an equality as regards certain conditions 
of production, and since any inequality in these respects 
must, as we shall show, importantly affect the distribution 
of the product, it becomes necessary to introduce the 
notion of price (par. 95). Instead, therefore, of supposing 
the great web of cloth to be cut into pieces, corresponding 
to the shares of the several persons who have taken part 
in its production, we must suppose the cloth to be sold, at 
such a price as shall be fixed by the competition of other 
factories, differently situated in some respects ; and the 
proceeds of the sale to be divided among the claimants. 

161. Production at the Greatest Disadvantage. — This 
way of approaching the question of distribution, viz., 
through Price, requires us to review the principle which 
governs Normal Price. In Chapter X we saw that the 
Normal Price of any kind of goods is determined by the 
cost of ^'^that last considerable portion of supply which is 
produced at the greatest disadvantage.^^ This principle is of 
vital importance to the theory of the distribution of wealth. 
The reader should, at this point, carefully review that chap- 
ter, until he is sure that he holds its subject-matter strongly 
and clearly in his mind. 

162. The Assumption of Perfect Competition. — Through- 
out the next few chapters, we shall speak of the parties to 
the distribution of wealth and of their sevei^al shares, as if 
competition were perfect. We shall assume that every pro- 
ducer of wealth, in every capacity, every claimant upon the 
product, on whatever ground he bases that claim, thoroughly 
understands his own true, permanent, economic interest; 



POLITICAL ECONOMY. 187 

that he clearly sees whatever is necessary to secure for him 
the largest practicable share of the product to which he 
has contributed ; and that he will not fail at any point or 
at any time to pursue those means^ peacefully and honestly, 
to be sure, but also firmly, consistently, and courageously, 
allowing nothing to turn him aside from his purpose. 

Of course, this assumption will not correspond to the facts 
in any human community. Men are always something less 
than perfectly wise, perfectly brave, perfectly consistent 
and true to themselves. They are, alas ! generally found 
far, very far, below the standard we have set up. They 
often mistake their interests ; they as often neglect their 
interests, even when they rightly discern them, j^otwith- 
standing this, it will be profitable and expedient for us to 
go over the whole ground of the distribution of wealth, 
upon the assumption which I have made ; and thus to see 
what would happen if all men clearly understood their true 
economic interests and unfalteringly pursued them. We 
shall, then, in subsequent chapters, inquire into the effects 
of imperfect competition : who will lose and who gain ; why 
one should lose and another gain, in case men do, in any 
considerable degree, fail to see and to seek their true 
economic interests. 

163. The ^am Parties to the Distribution of Wealth. — 
In par. 159 we saw that, in the case of a cotton mill, there 
were six claimants (persons or classes of p'ersons), who 
were to receive shares, greater or smaller, of the mighty 
web of cloth, woven in the mill. It is not, however, 
necessary that, in proceeding to consider the general 
principles regulating the distribution of wealth, we should 
carry all these along with us. The main parties to the 
distribution of wealth are four in number. 

Thus, to recur to the instance of the cotton-mill, it is 
true that the share received by the owner of the water- 



188 POLITICAL ECONOMY. 

power, as such, is distinguishable in theory, and may also 
be distinct in fact, from the share received by the owner of 
the land on which the factory is built. Nevertheless, both 
cases come under a certain general law, which we shall call 
the Law of Eent; and, for all the purposes of an elemen- 
tary treatise, it will suffice to show the general law, leaving 
special cases under it to be worked out by the scholar, or 
explained by the teacher. 

In the same way, the share received by the owner of the 
mill, as such, is distinguishable in theory, and may be also 
distinct in fact, from the share received by the owner of 
the machinery, the materials and the working capital. 
Different persons may actually receive these two shares. 
And yet, although the mill is fixed capital, and the ma- 
chinery and materials are circulating capital (par. 63), one 
general law, which we call the Law of Interest, governs 
both species. It will answer all our purposes to ascertain 
what this law is. 

The four main parties to the distribution of wealth are, 
then, the following: 

1. The Landlord, — furnishing land power, and receiv- 
ing Eent. 

2. The Employer, — furnishing business ability, and re- 
ceiving Profits. 

3. The Capitalist, — furnishing capital, and receiving 
Interest. 

4. The Laborer, — ^furnishing labor power, and receiving 
Wages. 



CHAPTER XVin. 
RENT. 

164. The Surplus above Cost of Production. — In Chap- 
ter X we showed that ^^ the normal price of any kind of 
goods is determined by the cost of that last (considerable) 
portion of the necessary supply which is produced at the 
greatest disadvantage.^^ 

Further inquiring how there could be any such thing as 
advantage or disadvantage, in regard to different portions 
of the supply, we saw that, in regard to two of the four prin- 
cipal agents of production^ there is not, necessarily, any 
such thing as advantage or disadvantage between different 
portions of the supply; but that, in regard to the two remain- 
ing agents, there is, in the nature of the case, certain to be 
differences of productive power, which will cause portions 
of the supply to be produced at an advantage, relatively to 
other portions. 

The two productive agents which do not necessarily vary 
in their efficiency, as between different portions of the sup- 
ply, are capital and labor power (par. 78). The two ele- 
ments which, in the nature of the case, do vary with differ- 
ent portions of the supply, are land power and business 
ability (pars. 79 and 80). 

We further saw that, while different portions of the sup- 
ply are produced at different, perhaps very different, costs, 
all parts of the supply are sold at the same price, in the 
same market. If the price of silver be a dollar, an ounce, 
that price is received by the owner of the mine a-t which 

189 



19U POLITICAL ECONOMY. 

silver is produced at twenty-five cents, an ounce, just as surely 
as by the owner of the mmes at which silver is produced at a 
dollar. If the price of wheat be six shillings, a bushel, the 
farmer whose wheat has cost but three shillings receives the 
full price. An able and skilful manufacturer does not sell 
his goods for what they cost him, but at the price which 
has been fixed for that kind of goods,* by the cost of pro- 
ducing them on the part of the least competent and efficient 
manufacturers contributing to the supply of the market, in 
this line. 

It thus appears that, upon a large part of the wealth pro- 
duced (upon all, indeed, except ^^that last considerable 
portion of the supply which is produced at the greatest dis- 
advantage"), there is A sukplus above the cost of produc- 
tion. This is a fact of tremendous consequence in the dis- 
tribution of wealth. It is the fact with which we must 
begin our inquiry, for we cannot with advantage take a 
step forward, before we have found out to whom this sur- 
plus is to go. 

165. To Whom shall the Surplus Go? — We have seen 
that, while different portions of the supply are produced 
at different costs, all are yet sold at the same price. This 
price, we have further seen, must be high enough to main- 
tain production in the places and under the conditions 
where it is actually carried on '^at the greatest disadvan- 
tage." That disadvantage, we saw, relates to the land 

* It will be remembered that we are here speaking of normal price. 
Market price may, for a time, by the operation of supply and demand, 
fall below normal price; and thus the less successful manufacturers 
may realize a certain loss upon their goods. This state of things, 
however, cannot continue indefinitely. It is not normal; and the 
operation of the principle of self-interest tends steadily and strongly 
to bring the market back to the point where the least successful pro- 
ducers will sell their goods for the cost of their production, but for 
no more. 



POLIITGAL EGONOMT, 191 

power and the business ability employed in production, 
not at all to the labor power or the capital, so employed. 
It is, thenj tliose who own the more productive land aiid 
ivho possess the higher business aMlity, ivho will carry off 
the entire surplus over the cost of production. No part of 
this will go to reward labor or capital. Labor and capital 
will only get what they can produce " at the greatest dis- 
advantage/' All that is produced in excess of this will go 
either to the landlord, as rent, or to the employer, as profits. 

We see, then, that all the wealth produced annually, or 
in any given time, is divided into two great parts. One of 
these is equal to that amount of wealth which would have 
been produced, had all the labor and the capital been em- 
ployed under conditions (as to land power and business 
ability) as disadvantageous as those under which any (con- 
siderable) amount of labor and of capital was actually em- 
ployed. All this wealth is divided, clear, between the 
laborer and the capitalist. The landlord and the employer 
get none of it; but they do get all of the product which is 
over and above this. 

Which, then, of these two great parts of the wealth-pro- 
duct shall we take up first for consideration ? Shall we take 
up that part which represents the cost of production (labor 
and capital), or shall we take up that part which consists 
of the surplus above the cost of production ? I answer, 
clearly, the latter. Eent and Profits should be treated be- 
fore Wages and Interest. Many economists have, by re- 
versing this order, fallen into serious confusion, which we 
may hope to avoid. 

166. Rent. — I have said that the entire excess of price 
over cost is divided between the landlord and the employer. 
We shall first take up the landlord's share, to which we 
have already, by anticipation, applied the term Eent. For 
the purpose of greater clearness and simplicity, we shall, 



192 



POLITICAL ECONOMY. 



througliout this and the next succeeding chapter, write as 
if there were no profits. We shall see, when we come to 
Chapter XIX, that there would be no profits, were there no 
*' production at disadvantage," in respect to business abil- 
ity,* i.e., were all employers equally able and competent to 
conduct business. Such a state of things we now, for the 
purposes of argument, assume to exist, leaving it to a later 
period to consider how profits actually arise, and by what 
forces they are limited. 

167. The Origin of Rent. — To get a fair start, let us go 
back to the case which we assumed in paragraph 81. We 
there supposed that the people of a certain district or 
country wanted enough wheat, and wanted wheat badly 
enough, to make up an effective demand for a hundred and 
thirty million bushels, at the price of six shillings, a bushel. 
We further assumed that portions of this supply were pro- 
duced at different costs, as follows, only a part of tract 
No. 5 being cultivated : 



Tract. 


Amount pro- 
duced, in bushels. 


Cost, per 
bushel. 


Surplus of 

price over 

cost, per 

bushel. 


Surplus of price over 

cost, for the whole 

crop. 


No.l 
*' 2 
" 3 
" 4 
** 5 


10,000,000 
20,000,000 
30,000,000 
40,000,000 
30,000,000 


S shillings 

3 

4 

5 

6 


4 shillings 

3 

2 

1 




40,000,000 shillings 
60,000,000 
60,000,000 
40,000,000 




130,000,000 






200,000,000 shillings 



Now, since the whole crop is sold at six shillings, it will 
bring 780,000,000 shillings. How much of this total 
amount will go to Rent, on the one hand; how much to 

* Indeed, in pars, 54 and 55, it has been stated that, in a primitive 
condition of industrial society, there are no profits, or at lef^st non^ 
worth bringing into account. 



POLITICAL ECONOMY, 193 

Labor and to Capital, on the other ? The answer is given 
above. The total surplus over cost of production, on the 
entire crop, will be two hundred million shillings. This 
amount, then, will go, entire, to the owners of the land, as 
rent. The remainder, five hundred and eighty million 
shillings, will go to the laborers and the capitalists who 
took part in the production of the wheat. How that 
amount will be divided between these: how much will be- 
come Wages, and how much will become Interest, is a ques- 
tion which we shall be called to discuss in subsequent 
chapters. For the present, it is sufficient to note that 
the laborers and capitalists have a common interest as 
against the land-owning class. They can only divide be- 
tween themselves what the latter do not claim and receive, 
as the surplus above cost of production. 

168. The Margin of Cultivation. — To bring out this last 
point clearly, let us make another series of assumptions re- 
garding the community in question. We will suppose that 
each of the four better kinds of land is half as large again 
as we first assumed it, so that fifteen million bushels can 
be raised on the two-shilling tract; thirty million bushels 
on the three-shilling tract; forty-five million bushels on the 
four-shilling tract ; sixty million bushels on the five-shilling 
tract. The four tracts taken together are, thus, capable of 
producing one hundred and fifty million bushels, none of 
it at a cost above five shillings. We will, further, assume 
that, at this lower price for wheat, the community are able 
and glad to consume a hundred and fifty million bushels. 
The entire crop will then sell for seven hundred and fifty 
million shillings. The community will have the pleasure 
and the physiological benefit of consuming twenty million 
more bushels of wheat,.while paying thirty million shillings 
less for wheat than they formerly did. It is not needful to 
say that this would be a great advantage to the community. 



194 



POLITICAL ECONOMY, 



But let us see how the account now stands between the 
land-owning class, on the one side, and the capitalists and 
laborers^ on the other : 



Tract. 


Amount pro- 
duced, in bushels. 


Cost, per 
bushel. 


Surplus of 

price over 

cost, per 

bushel. 


Surplus of cost over 

price, for the whole 

crop. 


No.l 
" 2 
" 3 


15,000,000 
30,000,000 
45,000,000 
60,000,000 


2 shillings 

3 

4 

5 


3 shillings 

2 

1 




45,000,000 shillings 

60,000,000 

45,000,000 








150,000,000 






150,000,000 shillings 



We see that, in this case, the land-owning class will re- 
ceive but one hundred and fifty million shillings, as rent, 
or just one-fifth of the price of the crop, whereas, formerly, 
they received more than one-fourth. Dividing the aggre- 
gate rent by the aggregate crop, we find that the landlord 
class now receive only one shilling, rent, to each bushel of 
the crop ; whereas, in the previous case (par. 167), they 
received a shilling and a half. 

To still further illustrate the operation of this force, let 
us make a new series of assumptions. Let us suppose that 
the several better tracts of land are so large that the two- 
shilling tract can produce thirty million bushels; the three- 
shilling tract, sixty millions; the four-shilling tract, ninety 
millions. The three tracts, taken together, then, will be 
capable of producing one hundred and eighty million 
bushels, none of it at a cost above four shillings, which, 
consequently, will become the price of wheat. Let it 
further be supposed that, at this price, the members of the 
community are glad to extend their consumption to one 
hundred and eighty million bushels, enjoying, thus, both 
the pleasure and the physiological benefit of being better 
nourished than ever before, while paying less for the larger 



POLITICAL ECONOMY, 



196 



than they formerly did for the smaller amount. Let us 
again see how the account stands between the land-owning 
class^ on the one hand, and the laborers and the capitalists, 
on the other. 



Tract. 


Amount pro- 
duced, in 
bushels. 


Cost, per 
bushel. 


Surplus of 

price over cost, 

per bushel. 


Surplus of price over 
cost, for the whole crop. 


Ko. 1 
" 2 
" 3 


30,000,000 
60,000,000 
90,000,000 


2 shillings 

3 

4 


2 shillings 

1 




60,000,000 shillings. 
60,000,000 




180,000,000 






120,000,000 shillings. 



The reader sees that, in this case, the land-owning class 
will receive, as rent, only one hundred and twenty million 
shillings, which is but one-sixth the price of the crop. Di- 
viding, again, the aggregate rent by the aggregate crop, we 
find that the landlord class now receive, as rent, but two- 
thirds of a shilling for each bushel of the crop, instead of a 
shilling, as by the last supposition. 

The moral of this is clear, and is of immense and almost 
illimitable consequence to mankind. Of course, the com- 
munity, as a whole, is interested in having its labor and 
its capital applied to good instead of to poor lands: there 
is no need to say that. But wc, also, see, from the above 
illustrations, that, wholly in addition to their interest as 
members of the community, laborers and capitalists have 
a special interest (opposed to the interest of the land- 
owning class) in not having the "margin of cultivation^^ 
lowered, i.e., in not having cultivation forced down to 
poorer soils. Every time the necessity of meeting the de- 
mand for vegetable or animal produce, for food or for 
clothing, forces cultivation to descend to a poorer grade of 
land, the land-owning class will receive, not only a larger 



196 POLITICAL MGON^OMY, 

absolute amount of the produce, but also a larger share of 
the produce. 

169. The Increase of Population. — "We see, then, at 
what a cost population increases, after the point of Dimin- 
ishing Returns has been reached. Not only is there, as 
we showed in Chapter V, a smaller proportional return to 
cultivation, but, of that return, a diminishing share goes to 
those who perform the labor or furnish the capital. As was 
said (par. 28), all mankind dwell, and must forever dwell, 
under the shadow of this condition. If a community is 
led to take up an inferior grade of soils because its labor 
power and capital power have been enormously increased 
by the invention of machinery and the introduction of use- 
ful arts, the disadvantage of resorting to poorer soils may 
be more than compensated by the opportunity to apply 
that increased power to some soils, even if poorer. But, 
wherever the reason for a resort to inferior land is found, 
not in greater skill and larger capital and improved arts, 
but in the primary wants of an ignorant and helpless pop- 
ulation, increasing in numbers without advancing in indus- 
trial power or in social ambition, the results are miserable, 
indeed. A large part of all the wretchedness of mankind 
can clearly be traced to this source. 

170. Transportation. — We have thus far compared dif- 
ferent parcels of land, as to their productive powers, just 
as if they lay side by side, equally near to the market 
where the produce was to be sold. Of course, the reader 
will see for himself that, if two tracts lie at unequal dis- 
tances from the market, the several costs of transporting 
produce must be taken into account, in making out their 
comparative costs of production. If the price of wheat, 
in a certain market, is five shillings, a tract of land upon 
which wheat can be raised at a cost, upon the ground, of 
two shillings, but which is at such a distance that the 



POLITICAL ECONOMY. 197 

transportation to the market costs a shilling, a bushel, will 
bring a rent not of three shillings, a bushel, but of two. 
The cost of production of that wheat is three shillings : 
two shillings for the labor and capital employed on the 
land; one shilling for the labor and capital engaged in 
transportation. 

Wheat may be raised in parts of Dakota, at a cost of, say, 
fifty cents, a bushel ; but if it costs fifty cents additional to 
get that wheat to London, and if wheat be selling there 
at a dollar and twenty-five cents, the Dakota land will only 
yield a rent of twenty-five cents, per bushel, although that 
land is just as good as land in Kent which pays seventy- 
five cents, a bushel, rent. 

During the last ten or twenty years, there has been a 
marvellous reduction in the cost of transporting grain and 
other agricultural produce from the United States to 
England. Cheaper steel rails and more powerful locomo- 
tives have enabled the crops of the Great West to be hauled 
to the sea-board at a much less expenditure of labor and 
capital ; at the ports, steam " elevators " have taken the 
grain from the cars and discharged it into the hold of the 
vessels, at a tenth part of the cost formerly involved in 
handling the grain in baskets or bags ; while gigantic 
steamships, with '' compound engines,^" which carry the 
grain across the sea in ten or twelve days, have replaced 
the small and slow sailing-vessels, which in the old days 
did this service. 

As a consequence, rents have fallen sharply in England 
and in Ireland ; the lands on which wheat was formerly 
produced for the British market ^' at the greatest disad- 
vantage " have been thrown out of cultivation, their place 
being taken by the wheat-fields of Minnesota and Dakota. 
, This '^ raising of the margin of cultivation" has acted upon 
British rents in the way illustrated in par. 168. In the 



108 POLITIOAL EGONOMT. 

first place, the British public have had the benefit of a 
lower price for wheat, and hence of a freer consumption of 
that necessary of life. In the second place, the British 
labor and British capital still applied to the cultivation of 
British lands receive a larger share of the total product, 
while the land-owning class receive a smaller share, than 
formerly. 

171. Land Improvements. — In speaking of rent, the 
political economist finds it necessary to make a distinction, 
which the reader must carefully observe, between that por- 
tion of the yield of land which is due to the natural powers 
of the soil, and that portion which is due to so-called im- 
provements. Those improvements embrace everything 
which is done upon the land, or for its benefit, above what 
is involved in the mere cultivation of the soil for the 
annual crop, such as the erection of barns and sheds, fenc- 
ing, ditching, clearing the ground of brush and timber, or 
opening roads through it. All such improvements consti- 
tute Investments of Capital ; and the return which is made 
to them, through increased crops or diminished cost of 
production, is a return to capital, and is, therefore. Interest, 
of which we shall have to speak hereafter. Rent only em- 
braces the return which is made to the owners of land, 
considered as unimproved. 

The foregoing distinction is an exceedingly important 
one. It is the less likely to be duly observed because, in 
common speech, the whole return, on the one account as 
well as on the other, is called Rent. Thus, I might take a 
lease of an estate, at a rental of three thousand dollars a 
year. Of that sum, two thousand dollars might really be 
on account of the native powers of the soil, and one thou- 
sand, on account of useful improvements upon it, either 
enabling the land to produce a greater crop with the same 
expenditure of labor and capital, or enabling it to produce 



POLITICAL EGOmMT. 199 

tlie same crop with a smaller expenditure of labor and 
capital. But, neither in the written lease of the estate, 
nor in the talk of the landlord or myself or my neighbors 
about it, is this distinction observed. The whole three 
thousand dollars is called rent. The political economist, 
however, is bound to observe this distinction, since, as we 
shall see, the Law of Interest differs very widely from the 
Law of Eent. 

The proportion, in which what is popularly called rent 
is divided between real rent and interest, varies in the case 
of different farms, and varies, often very widely, in the 
case of different regions or countries. A farm in Illinois, 
which produces, with a certain application of labor and 
capital, sixteen bushels of wheat to the acre, may be just 
as good land, naturally, as a farm in England which pro- 
duces twenty-four bushels to the acre. The farm in Illinois 
has had comparatively little capital expended upon it; the 
farm in England has had a great deal of capital expended 
upon it, of which the additional eight bushels, per acre, is 
the reward; and is, therefore, interest. 

In some parts of the United States, through considerable 
portions of their history, very little capital has been so ap- 
plied. Occupiers have been so eager to take as much as 
possible from the land, each year, that they have applied 
all the labor and capital they could command to increasing 
the immediate crop, without doing anything for the per- 
manent improvement of the soil. At the South, indeed, 
the cultivation of cotton and of tobacco was formerly pur- 
sued so eagerly that the lands declined in fertility. 

Generally speaking, it is impossible to say how much of 
the crop of any field is due to the native properties of the 
soil, and how much to investments of capital. Most of the 
improvements made in agriculture are made little by little; 
and no account is kept of them. Moreover, many of these 



200 POLITICAL ECONOMY. 

improvements are made in seasons of the year, or in hours 
of the day, when the labor of the farmer and his sons and 
his hands would not otherwise have been employed at all; 
and it is difficult to say how much that labor was worth. 

172. The "Cost" of Producing Farms. — Some statisti- 
cians and economists have even undertaken to prove that 
all the value of even the best land is due entirely to im- 
provements, and not at all to the native properties of the 
soil. These efforts have failed, first, because, as shown 
above, it is impossible to ascertain what the improvements 
made upon the land have actually cost, and, secondly, be- 
cause that proposition is so clearly contrary to reason. We 
know that some land, in its native state, will yield a hand- 
some crop, on its first year's cultivation ; while other land 
would not return to its cultivators enough to keep them 
alive. Then, the former lands must have a higher value, 
as compared with the latter. 

We know, moreover, that some land has a larger capability 
of responding to investments of capital than other land. 
Very well, then, the former land must have a higher value, 
as compared with the latter. Suppose two entire Counties 
were to-day to be " discovered," in Illinois : would that 
land have no value ? On the contrary, it would at once be 
worth from twenty to thirty dollars an acre, although not 
a dollar's worth of capital had ever been applied to it. 
The furious rush made by tens of thousands of persons, 
from every part of the United States, to Oklahoma, during 
the present year, when that territory was first declared 
''open to settlement," is testimony, that cannot be misun- 
derstood, to the fact that land, in its native state, may 
have value, even a very high value. 

All through the history of the United States, men have 
been seen by thousands, and by hundreds of thousands, 
exiling themselves from home and taking up their march 



POLITICAL ECONOMY. 201 

across the continent, to occupy new lands at the West. If 
the value of land is entirely due to improvements, why was 
not all this labor and capital expended upon the lands at 
home, near to the seats of manufacture, and upon the 
rivers which flow to the Atlantic ? That it was not, but 
that, on the contrary, large tracts of land were here left 
altogether uncultivated, while population poured westward, 
over ten, twenty and thirty degrees of longitude, is evi- 
dence, which surely no one ought to mistake, that lands, as 
they are found in a state of nature, differ widely as to their 
immediate productiveness, and widely, also, as to their 
capability of responding to improvements. 

173. The No-Rent Lands. — It will have been observed 
that, in speaking of the origin of rent, in par. 167, we as- 
sumed that the lowest grade of lands under cultivation, at 
any given time, pay no rent. This is a point on which the 
reader should fix his attention. The whole theory of Eent 
depends upon the existence of No-Rent lands. Of course, 
in speaking of certain lands as bearing no-rent, we mean, 
either, literally no rent at all, or else a rent so small that, 
with reference to the magnitude of the other interests 
involved, it may properly, in economic reasoning, be called 
no rent.* One of the first lessons which the social or the 
economic philosopher has to learn is that there is a point 
beyond which he must cease to regard an element or a fac- 
tor. Even the mathematician carries his computations out 
only to a certain decimal place. 

* Until recently, any citizen of tlie United States could, by law, 
freely take up excellent land, of a high degree of fertility, at the 
government price of $1.25 per acre. Now, the interest upon the pur- 
chase-price of this land, would, at seven per cent, be nine cents, an 
acre, per year. Yet, in raising a crop from the land, from eight to 
twelve dollars' worth of labor and capital would be applied to each 
acre. Clearly, where rent falls to one per cent upon the cost of 
cultivation, we may speak of it as no-rent. 



202 POLITICAL EGOnOMY. 

Even were it true that no piece of land was ever cul- 
tivated without paying some rent;, in some degree, however 
small, this would not in the least affect the validity of our 
principle. Whenever the rent of land becomes so small 
that it is less than the value of the hay or the grain which 
the farmer leaves upon the field, neglecting to glean it, this 
may certainly be called no rent, for all the purposes of 
economic reasoning ; and rent no larger than this is paid, 
to-day, for large bodies of grazing and even of cultivated 
land. 

174. The Law of Rent. — We are now in a position to 
formulate the law of Rent. We have seen what is the 
origin of Rent. Rent arises out of the differences which 
exist in the productiveness of the different soils which are 
under cultivation, at the same time, for the supply of the 
same market. 

Such is the origin of Rent. What is the measure of 
Rent? I answer, the amount of Rent is determined by the 
degree of the differences which has just been referred to. 
The normal rent of any piece of land is fixed by the dif- 
ference between its annual yield and that of the least 
productive land actually cultivated for the supply of the 
same market. To recur to the illustration previously 
given, if the six-shilling land is on ^Hhe margin of cultiva- 
tion," and thus, itself, bears no rent, the two-shilling land 
will bear rent of four shillings, per bushel. Any man may 
just as well pay such a rent for the privilege of cultivating 
this land, as cultivate a tract of the six-shilling land, for 
nothing. But if the margin of cultivation should rise, so 
that the five-shilling land should be the poorest cultivated, 
then the rent of the two-shilling land would sink to three 
shillings, a bushel. In every case, rents are measured up- 
wards from the no-rent line. 



POLITICAL ECONOMY, 203 

175. Rent Does Not Form a Part of the Price of Agri- 
cultural Produce. — From the principles we have already 
established, we are able to deduce a conclusion which may, 
at first, be startling to the reader, viz., that rent forms no 
part of the price of agricultural produce. This surely is a 
'' hard saying f but it can be demonstrated as strictly as 
any theorem in geometry. We know that rent forms no 
part of the price of agricultural produce because that price 
is determined by the cost of raising it upon lands which 
pay no rent. How, then, can rent be an element in that 
price? If the price of wheat is six shillings, this is because, 
in order to raise the required amount of wheat, cultivation 
has to be carried down to the six-shilling land. In a word^ 
the price of produce is not high lecause rent is paid ; hut 
rent is paid because the price of produce is high. If there 
were enough of the two-shilling land to raise all the wheat 
required, and more, the price of wheat would then be two 
shillings, and no wheat-land would pay any rent. 

176. Bent Is Not Obtained by Deduction from Wages.— 
We are now to announce another, proposition, which may 
prove not less startling than the last. It is that rent is not 
obtained by deduction from wages. If wages are low, this 
is not because rents are paid for the better lands, but 
because the cultivators of the poorer lands can pay no more 
wages with any hope of getting them back in the price of 
their produce. 

Only a certain amount of labor could be profitably em- 
ployed on the two-shilling land. This would leave a large 
amount of labor unemployed. Even the added cultivation 
of the three-shilling land would not take up all the labor 
''in the market.'' It will, perhaps, not be until the four- 
shilling, the five-shilling, and the six-shilling land have all 
been brought under cultivation, that the entire amount of 
labor will find employment. Now, the last tract of land 



204 POLITIOAL BGONOMT, 

being as poor as it is, and the price of wheat being only six 
shillings, the cultivator of that tract can only pay a certain 
rate of wages. Were he to undertake to pay more, he 
could not get it back in the price of his produce ; and 
would, therefore, soon be obliged to suspend production. 

The rate of wages being thus fixed by the capabilities of 
the six-shilling land, this rate will be paid for labor on all 
the higher grades of land. There will be no economic 
force to compel the cultivators of the better lands to pay 
higher wages; nor would it do any good to the laborers, 
were they to undertake to do so. For, in that case, the 
laborers would abandon the poorer lands and all rush to 
get employment on the better lands. Since, however, these 
lands could only profitably employ a certain amount of 
labor, this would leave a portion of the laborers unemployed, 
and a portion of the fields actually required for supplying 
the community with wheat, uncultivated. 



CHAPTER XIX. 
RENT, CONTINUED. THE OWNERSHIP OP LAND. 

177. The Tenure of Land.— We have now, so far as 
seems practicable in an elementary treatise, laid down the 
general principles which govern the rent of land. We 
have seen where rent originates, and what is its measure, 
or limit. We have seen that, by the operation of purely 
economic forces, all the excess of price over cost must go 
to the owner of the land. 

Bu't, it may be asked, ivho is this owner of the land? and 
why should he be in a position to demand and obtain this 
large share of the annual produce of industry? Why 
should not some one else have the whole or a part of the 
wealth thus appropriated ? These are questions which it 
is perfectly fair to ask; which many people, in many 
countries, are now asking with great earnestness. 

178. How about the Consumer of Agricultural Produce? 
—In the first place, as a step towards answering these 
questions, let us ask what other person or persons could 
reasonably make claim to that portion of the produce 
which the land-owner receives, as rent ? Is it the con- 
sumer of agricultural produce ? Does he suffer any wrong 
by the present system ? Nay, would it even be possible to 
confer any benefit upon him by a change of system ? 

Of course, the consumer desires to obtain his produce at 
the lowest price possible. Of course, it would be better for 
him if the price were lower than it is. But we have seen 
that the price of produce is not higher by reason of rent 

205 



206 POMTIGAL ECONOMY. 

being paid. The price of wheat is what it is because the 
cost of producing wheat on the poorest lands under cultiva- 
tion is what it is. Somebody has got to eat the wheat 
grown on the six-shilling land ; and consequently has got 
to pay six shillings for it. Who is the man that has the 
right, in preference to all others, to eat the wheat grown 
on the two-shilling land and pay only two shillings for it ? 
What gives him that right ? How is he any better than 
the men who are to eat the wheat grown on the poorer 
lands and are to pay the cost of raising it ? 

No ! Not the faintest claim can be set up, on behalf of 
the consumers of agricultural produce, that they should 
receive any part of that which now goes to the landlord, as 
rent. It is perfectly right and just that what one man pays 
in the market for wheat, every other man should pay. 

179. How about the Agricultural Laborer? — Is it the 
laborer, who can put forward a claim to this share of 
the produce ? I answer, no. The laborer who works 
upon the six-shilling land, which pays no rent, is just 
as deserving as the laborer who works upon the two- 
shilling land, and is entitled to just as high remuneration. 
To allow the laborers upon the better grades of land to 
divide among themselves the whole or any part of that 
which the land-owners receive, as rent, would be the 
grossest injustice. We have already seen that it would be 
socially impracticable, since such a scheme would lead to a 
mad rush of all the laborers to the best lands ; to the 
abandonment of tracts required to supply the community 
with food; to turmoil, violence and bloodshed, in the 
struggle for employment upon the highest grade of land, 
upon which, alone, any laborer would consent to work. 

180. How about the Capitalist ? — We have, remaining, 
only one person, or class of persons, whom we can conceive 
as making a demand for rent, or for any part of it. This 



POLITICAL ECONOMY, 207 

is the capitalist. Could he reasonably put forward such 
a claim ? I answer, such a claim would be just as 
sound on his part as on the part of the laborer, and no 
more. The capitalist who lends horses and carts and im- 
plements and food and clothing, to be used in the cul- 
tivation of the two-shilling tract, is entitled to no higher 
remuneration than the capitalist who lends similar things 
to be used in the cultivation of the six-shilling tract. Jus- 
tice, as between capitalist and capitalist, will only be real- 
ized when each receives for an equal service an equal re- 
turn. 

181. How about the Community? — I have said that 
there is no other person, or class of persons, regarding 
whom we could raise a question in this connection. 
Is, then, the right of the land-owner, to receive rent, 
beyond any challenge ? I answer, no. While no person 
and no class of persons, other than the land-owner, can 
put forwai'd a reasonable claim to rent, or to any part of 
it, there is, yet, a claim to be considered. It is the claim 
of THE COMMUKITY, to which the land-owner belongs, to 
which the laborer belongs, to which the capitalist belongs, 
,and in which they all have rights and interests. 

182. The Nationalization of the Land. — The claim that 
the community, or the State, should receive all the excess 
of price above cost, has been put forward, at various times, 
without attracting much public interest. Within the last 
ten years, however, this claim has again been put forward, 
and has, this time, been urged with so much enthusiasm 
and eloquence as to attract public attention very widely 
and to arouse an intense interest in many minds. The 
agitation of the subject is not unlikely to proceed even 
further ; and those who are now in school will probably be 
called upon to express their views and to take their posi- 
tions, as members of the public body^ with reference 



208 POUTIGAL ECONOMY. 

thereto. I, therefore, proceed to speak of the project to 
which the term. Nationalization of the Land, is applied. 

There can be no question, I think, that if,the community 
chooses to claim rent, it has a clear and a full right to it. 
Of course, when I speak of rent, in this way, I mean true 
economic rent. That part of rent, popularly so called, 
which is due to improvements made in the land (par. 170), 
is not embraced in the foregoing statement. Moreover, 
the statement made above assumes that the community, or 
State, will respect and save all those rights which have been 
vested in individuals by its own acts and laws. No matter 
how strong the claim of the State upon rent may be deemed 
to be, if the State has allowed and encouraged me to pur- 
chase with my own earnings a piece of land, in the reason- 
able expectation and the then legal assurance that I am to 
receive the rent of that land, the State becomes simply a 
robber, neither more nor less, if it proceeds to take that 
land away from me, or to take from me the right to receive 
its full proper rental, without compensation.* The State 
has the right, however, at any time to give public notice 
that thereafter it will claim and collect for itself all future 
increase in the rental or the selling price of all lands within 
its jurisdiction. 

183. The Equities of Rent. — Subject to the foregoing 

* It is greatly to be regretted that just that which in the text 
is denounced, in terms which I have not been careful to meas 
ure, is proposed by Mr. Henry George, in his famous work, 
"Progress and Poverty," and in his subsequent writings and ad- 
dresses. Mr. George distinctly repudiates the idea of giving com- 
pensation to the owners of land which the State may take away 
from them, notwithstanding that they have acquired their properties 
under the sanction and encouragement of the State, itself, and even 
though the State itself may have sold the land and put its price 
into the treasury. Such a proposition is simply infamous, and doe^ 
not deserve discussion by an^^ honest pergon. 



POLITICAL ECONOMY. 209 

qualifications, viz., (1st) that the right of the owner of the 
land to the full value of his *' improvements " be recognized, 
and (2d) that compensation be given for the full value of 
the land, at the time the system of land nationalization 
should go into effect, there could be no objection, on the 
ground of public justice, to the adoption of such a system. 
It certainly is true, as claimed by the advocates of this 
policy, that any increase in the rental value or selling value 
of land (aside from investments of capital, already spoken 
of), is due, not to the exertions and sacrifices of the owners 
of the land, but to the exertions and sacrifices of the com- 
munity. It is certainly true, as claimed by the advocates 
of land nationalization, that economic rent tends to increase 
with the growth of wealth and population ; and that, thus, 
a larger and still larger share of the product of industry 
tends to pass into the hands of the owners of land, not be- 
cause they have done more for society, but because society 
has a greater need of that which they control. 

184. The Primitive Tenure of the Land. — It has only 
been of late years that the careful and painstaking scholars 
of Germany, aided by two or three eminent historical 
students in England, have been able at last to uncover 
enough of the old ** metes and bounds'' to show how the 
soil was divided, and how it was cultivated, in most of the 
countries occupied by tribes and nations of the Aryan race. 
It thus appears plain that our ancestors did, to a very great 
extent, deal with the soil just as the advocates of land- 
nationalization wish us now to do. The territory of a 
tribe, or smaller band, was held in common ; the arable 
land was periodically divided up among the members of the 
tribe, for individual cultivation ; the undivided pasture 
and the undivided wood-land were subject to use by all the 
members of the tribe, either at pleasure, or according to 
some scale adopted by the tribe, regulating the amount of 



1310 POLITIGAL ECONOMY. 

wood which any member might take out of the forest, or 
the number of animals which he might turn out to graze 
upon " the common." AVhile this system of tribal owner- 
ship has almost universally disappeared, slight vestiges of 
it are still found here and there, in Europe, India and 
America. Many of the communes of Switzerland, for ex- 
ample, still hold their forests after the old fashion ; while 
> common rights of pasturage still exist in many communi- 
ties of Aryan stock. 

So far, therefore, as antiquity can furnish an argument, 
the advantage is with the advocates of land-nationalization. 

185. Why was Common Ownership Abandoned ? — If such 
was once a very common, if not the general or universal, 
land-policy of our ancestors, why was it abandoned ? Why 
has it been replaced everywhere by the system of private 
ownership, which gives to the individual, instead of the 
community, the power and the right to exact economic 
rent? 

The answer to this question is not a simple one ; and 
here, again, the advocates of land-nationalization possess a 
certain advantage, from the historical point of view. It is 
incontestable, that the 'gradual passage from the condition 
of common ownership to that of private ownership, was 
promoted by chiefs and great lords, with a view to their 
own personal advantage ; and that power joined hands with 
cunning to despoil the community for individual aggran- 
dizement. Even after the chiefs and great lords had re- 
ceived lands, as their own, subject to public charges and 
to public duties, they continued at work still further to 
benefit themselves, until, by their power, as legislators or 
governors, they succeeded in ridding themselves of those 
public charges and public duties. 

But, while the passage of the land from public to private 
ownership was thus, in a large degree, wrongful, I believe 



POLITICAL EGONOMt. ^H 

that candid inquiry will satisfy every historical student 
that what made it possible for the chiefs and great lords 
thus to acquire the soil, in their own names, was the fact 
that cultivation-in-common was exceedingly and increas- 
ingly unproductive and unprofitable. I deem it not unfair 
to say that this unproductiveness, this unprofitableness, of 
cultivation-in-common is so much in the nature of the 
case, is so far unavoidable, that the community fares 
vastly better under the private ownership of land, allow- 
ing the land-owning class to take out their rents, than it 
possibly could under a system of public ownership, where 
the whole product should go to the community. 

186. The Public Advantage of Private Ownership. -The 
justification of the private ownership of land, if it is to be 
justified at all is to be found in the public benefits it con- 
fers. Its private benefits, i.e., the interests of the land- 
lord class, form no part of that justification. But, if it 
can reasonably be proved that the community is distinctly 
better-off by reason of private ownership, then, no matter 
how much individuals may selfishly profit thereby, a public 
benefit is shown, and the system is justified. 

Now, this is exactly what the great majority of intelli- 
gent, experienced and disinterested men, in all countries, 
firmly believe. And, moreover, all those who hold this 
view also believe, without exception and without qualifica- 
tion, that this public benefit is not small but great ; is not 
transient but permanent, and is, even, of increasing im- 
portance. They believe, indeed, that public benefit to be, 
not great merely, but enormous, inexpressible : so much 
so, that no calamity more dire could befall the community 
than a return to common ownership. 

On the other hand, there is a comparatively small, 
though increasing, number of learned and able men, 
scattered through many countries, who hold that the abuses 



^1^ POLITICAL ECONOMY. 

of "landlordism" outweigh its benefits. Admitting the 
evils which have attended common ownership, in the past, 
and the difficulties to which it will always necessarily be 
subject, they yet believe, that, as nations become more and 
more enlightened, and as political forms and institutions 
become more and more democratic, common ownership 
will become an altogether good thing. Especially do they 
urge that the acquisition, by the State, of that economic 
rent which now goes entire to the landlord class, will not 
only relieve the people from the present burden of taxation, 
but will afford ample means for vast public improvements, 
in parks and hospitals, picture-galleries and museums, 
libraries and schools. 

The fact that those educated and experienced men who 
believe in the nationalization of the land are few, in com- 
parison with those who believe that such a policy would be 
baleful and pernicious, by no means settles the question. 
Many times in human history has public opinion been on 
the side of public abuses and antiquated systems. Yet, not- 
withstanding this, the settled preponderance of intelligent 
opinion constitutes a powerful presumption in favor of any 
policy. That presumption may be overcome by argument 
or by experience ; but until this has been done, every pru- 
dent man will hold himself strongly bound by it. 

187. The Objections to the Common Ownership of Land. 
— Eully to discuss such a question would require more 
space than could be given to it in an elementary treatise 
like the present. The two main objections to the common, 
or national, ownership of land are as follows. 

1st. The amount of political machinery that would be 
required to administer all lands, under such a system ; the 
gi'eat number of office-holders to be appointed for the pur- 
pose ; and the immense amount of corruption and favor- 
itism which would inevitably be involved. When one con- 



POLITICAL BGONOMT. 213 

siders how much evil results from the comparatively small 
operations of existing governments, which have to do only 
with a few of the concerns of the people, he cannot but be 
shocked and revolted at the thought of governments which 
should own the soil of every farm within their respective 
territories, which should own the road-bed of every rail- 
way and the ground upon which every man^s house, shop 
or store was built. The periodical leasing and re-leasing of 
all these properties, the fixing of their respective rentals, 
the estimation of improvements made by outgoing tenants, 
would necessarily so increase the work of government, 
would involve such an army of officials, and would afford 
such enormous opportunities for corruption and favoritism, 
as to threaten the very existence of human society. 

2d. Perhaps an even stronger objection to the common 
ownership of land is found in the liability to abuse of the 
soil, whenever it is cultivated by those who are not directly 
and deeply interested in preserving its fertility. It is always 
possible so to abuse the land, as, within a short term of 
years, nearly or wholly to destroy its value. Many of the once 
fairest tracts on earth, which formerly supported large popu- 
lations in abundance, are now little better than sterile deserts, 
all through man's reckless, or wanton, treatment of nature. 

The productiveness of the soil can only be preserved 
through the greatest care and pains on the part of the cul- 
tivating class. In countries, like England, where land is 
generally leased, owners are obliged to protect themselves 
against abusive or destructive cultivation, by the most 
stringent and minute provisions inserted in their leases ; 
and these are not always sufficient to save the soil from in- 
jury. In countries, like France, on the other hand, where 
the land is cultivated, mainly by those who own it, in small 
parcels, the soil improves from age to age on account of the 
deep, direct and personal interest which every cultivator 



^14 POLITICAL ECOmMT. 

feels in keeping up the value of his little estate, which 
was his father's before him and which shall be his chil- 
dren's after him. 

]^ow, were the owner of all lands to be the State, who 
can believe that the government would be able to protect 
its landed property, spread over thousands, or hundreds 
of thousands, of square miles, from the most monstrous 
abuse : abuse which might, in uo long time, permanently 
impair and even destroy much of that property? A single 
generation of abusive cultivation might cost a nation far 
more than the value of all the rents that would be reaped 
by the landlord class, under the system of private owner- 
ship, to the end of time. 

It is the force of considerations like the foregoing which 
causes nearly all men who have wide knowledge of public 
affairs and who are well read in human history, to accept 
the system of the private ownership of land, as inexpressibly 
superior to collective ownership. Fully as they may recog- 
nize the injustice of the social arrangements by which 
economic rent goes to private individuals, and increases, 
not according to the exertions and sacrifices of those indi- 
viduals, but according to the needs, the exertions and the 
sacrifices of the community, they yet see no escape from 
this result, except in a system which would turn govern- 
ment into an intolerable despotism, and would, at the same 
time, put in peril the permanent productiveness of the soil.* 

* The objection to collective ownership, arising from liability to 
abuse of the soil, does not apply with equal force, if at all, to land 
upon which houses are erected and cities built. There is, here, little 
or no danger of permanent injury. Consequently, some economists 
who strenuously oppose the ownership of agricultural lands, favor 
the acquisition by the State of all " urban " real estate, i.e., the sites 
of all towns and cities. The political objection, however, remains 
in full force in this c&^e, if, indeed, it is not here in greater strength 
than in the case of agricultural lands. 



CHAPTEE XX. 
PROFITS. 

188. The Point we have Reached. — Let us pause to note 
just where we are, in the theory of the distribution of 
wealth. 

We haye seen (par. 55) that four grand productive 
agents, viz.. Land-power, Business Ability, Capital and 
Labor, are applied to the production of wealth, in its vari- 
ous forms. We have seen (par. 165) that the aggregate 
body of wealth, thus produced, is, in economic theory, first 
divided into two great shares. 

Of these shares, one is equivalent to the volume of 
wealth that would have teen produced had all the lator 
and capital leen employed " at the greatest disadvantage ": 
that is, had all the labor and capital been applied to lands 
no better than the poorest actually cultivated for the sup- 
ply of the market ; and been so applied by employers no 
more efficient than the least competent employers actually 
controlling any considerable part of that labor and capital. 
All the body of wealth thus constituted is, as we saw, to 
go, entire and without deduction, to capitalists and labor- 
ers, though we are not yet prepared to show how that 
amount is to be divided between capitalists and laborers. 

The other great share of the product of industry consists 

of all THE EXCESS OF PRICE OVER COST. This is to gO, 

entire and without deduction, to landlords and employers. 
None of it can go to either the laborer or the capitalist, as 
such. Of this great share of the product of industry, we 

315 



216 POLITICAL ECONOMY. 

have already taken into consideration one part, viz., Eent, 
going to the landlord, as remuneration for the use of the 
native powers of the soil. Normal price being fixed by the 
cost of production (capital and labor) upon the poorest 
soils actually under cultivation for the supply of the mar- 
ket (which lands themselves pay no rent, see par. 173), the 
owners of all the more productive lands realize a surplus 
of price over cost. We have seen, in the last chapter, that 
such a surplus must, in the nature of things, exist ; and 
that it can only go to the owner of the soil, be that an in- 
dividual or the State. 

189. The Origin of Profits. — We now pass to consider the 
second of the two parts into which that great body of wealth 
which consists of the excess of price over cost, is divided. 
To this part we assign the name, Profits. It is the remu- 
neration of Business Ability,* engaged in the production of 
wealth. What is the origin of profits ? Why should any 
part of the product of industry go to the Employer ? To 
this question every one of my readers will have an answer 
ready. He will say that the employer must receive some 
share of the product of industry, in order that he may re- 
main an employer, at all. Whether he is to receive more, 
or is to receive less, he must, at the least, receive enough 
to keep him alive and in condition to do his work. But 
why should he receive any more than that ? To this ques- 
tion, again, every one of my readers will have an answer 
ready. The employer must receive as much as the laborer 
receives. When I speak of the laborer, in this connection, 
I do not mean the day-laborer, or tlie unskilled laborer ; 
but have reference to laborers of the higher grades, viz., 
superintendents, overseers, foremen, clerks, cashiers, ac- 
countants. Unless the employer is to receive, on the aver- 

For the definition of this industrial agent, see par. 55. 



POLITICAL ECONOMY. ^17 

age, taking one year with another, as much, or about as 
much,* as laborers of this class, he will naturally prefer to 
become a laborer himself. In order, tnerefore, that there 
may be^ employers (pars. 54-55), the remuneration of this 
industrial agent must, at the least, be as great as the re- 
muneration of the laborer : that is, profits must be equal to 
wages. Here, then, we take our start, in dealing with 
profits. We have, in wages, the minimum of profits. 
What we are to inquire about, in the present chapter, is 
this: how does it come about that employers, all or any of 
them, receive more than this minimum ? 

190. The No-Profits Class of Employers.— To the re- 
ftiuneration of the employing class, so far as it does not 
exceed the minimum spoken of above, we do not apply 
the term, profits. Profits, not in excess of wages, are not 
profits at all. Although received by employers, they are still 
nothing but wages. They are governed by the same law as 
wages, and should be considered as wages, and nothing else. 
"JSTow, what we have first to note is the all-important fact 
that there is a grade of employers who receive no profits : 
that is, whose remuneration does, on the whole and in 
the long-run, not exceed the amount which these persons 
could individually have expected to receive, as wages, if 
employed by others. In every large body of employers, 
there are always some no-profits employers, just as, in the 
lands cultivated for the supply of any considerable market, 
there are always some no-rent lands. This is the fact with 
which we start, in ascertaining the law of profits. 

*I say, ''about as mucli," because there is a class of men to 
wbom the exercise of authority and the opportunity to exert marked 
executive ability might be, in some measure, a recompense for under- 
taking the duty of an employer. The number of such men un- 
doubtedly tends to increase with the progress of civilization and the 
diffusion of intelligence. 



218 POLITICAL ECONOMY, 

If the prices of goods were so high that all employers 
made profits (that is, something in excess of wages), then 
it would inevitably happen, either that more persons would 
go into business and become employers, in order to secure 
these profits, or, else, that the existing employers would 
try to increase their business, so as to get more of these 
profits. By the operation of this simple force it comes 
about that competition among employers, for the profits of 
employment, constantly tends to bring prices down to the 
point where the least efficient employers make no profits. 

191. The More Efficient Employers. — Starting, thus, 
with a class of employers whom we call the no-profits em- 
ployers, we have to note the indisputable fact that above 
these rise, rank on rank, employers of higher and still 
higher degrees of efficiency in the employment of labor and 
the conduct of business. These are men who have, by the 
force of education or of experience, exceptional abilities or 
adaptations for commercial or industrial success. They 
are not always better men or better citizens than their less 
successful brethren; but, from whatever source they derive 
it, they possess peculiar power in the production of wealth. 
Using the same amounts of labor and of capital, they are 
able to produce more of wealth thereby. 

I say, more of wealth: that is, a larger amount of value. 
This may mean more goods of the same kind; or it may 
mean the same amount of goods, but of a better kind. 
Sometimes the peculiar industrial efficiency of an employer 
may be exhibited in the prevention of w^aste in his mate- 
rials, sometimes in the saving of wear-and-tear to ma- 
chinery and injury to tools. Sometimes it may take the 
form of ability to get much more out of his body of work- 
men, within the usual number of hours. We have shown, 
in paragraph 53, that this does not necessarily mean a 
greater physical and nervous strain upon the laborers. 



POLITICAL ECONOMY. 219 

Soflietimes the peculiar industrial efficiency of an employer 
may result in the production of a body of goods no greater^, 
but of a finer finish, or of more durable quality, or of a 
more attractive shape, commanding, thus, a higher price in 
the market. Sometimes the advantage which one em- 
ployer possesses over another, consists in a wider knowl- 
edge of men and a deeper insight into character, enabling 
him to avoid grave mistakes in entrusting his interests to 
incapable and unfaithful persons, or in selling his goods to 
irresponsible or dishonest parties. Sometimes the higher 
efficiency of employers may come from a rare commer- 
cial instinct, which enables them to tell, almost without 
knowing why, that prices are going to rise or to fall. 

It is not necessary to extend the description of the va- 
rious ways in which certain employers come to produce 
more of wealth than others are able to do, with the same 
amount of labor and capital. Those ways are not few, but 
many, very many. The resulting differences are not small, 
but great, very great. 

192. The Law of Profits. — If we have correctly discerned 
and stated the facts of industrial society, so far as they 
bear on this subject, we are now in a position to lay down 
the law of profits. 

Peofits arise out of the differe:n^ces in produc- 
tive EFFICIEI^CY AMOI^G THE EMPLOYERS ACTUALLY EN"- 

gaged 11^ business, for the supply of any market. 
Profits consist of the entire excess of price over 

COST OF PRODUCTION, AFTER ReNT HAS BEEN PAID. 

We shall illustrate this principle sufficiently for the pres- 
ent purpose, if we suppose that the required supply of 
goods, of a certain kind, at the existing price, would yield 
fifty millions of dollars; and that this aggregate has been 
produced, in equal amounts, by fifty employers. Now, in 
such a case, it is certain that some of these employers will 



220 POLITICAL ECONOMY. 

barely be able to make themselves good for their outlay in 
wages, in materials, in machinery and in other ways. 
They will have little or nothing left to themselves, after 
all the care and the pains they have taken ; after all the 
risks they have run ; after all the anxieties they have en- 
dured. In the same body of employers, there will be 
others who have made ten thousand dollars, in producing 
the same amount of goods ; others who have made twenty 
thousand dollars ; others, still, who have forty, sixty, or 
eighty thousand dollars left in their hands, after paying 
all bills which are properly chargeable to that production, 
including deterioration of plant, wear-and-tear of machin- 
ery, interest on capital, bad debts, etc. 

193. The Effects of Accident and Fraud. — It is true that, 
in some cases, and more or less in most cases, the force 
of fraud, or the effect of accidents, like fires and floods, 
will have had something to do with the failure of an 
employer to realize a larger profit, or to realize any profit 
at all, on his month^s or his yearns business. But this fact 
does not impair the truth or the importance of what has 
been stated. Were no frauds perpetrated, did no accidents 
take place, there would still be employers who would 
realize no profits out of any given amount of business ; 
while other employers were making profits ; others, 
large profits ; others, still, monstrous profits, under the 
same conditions, and with the use of the same amounts 
of labor and capital. 

Generally speaking, too, the men who make large prof- 
its, in spite of accidents and frauds, are the men who 
would make large profits in the absence of accidents and 
frauds ; while the men who make small profits, or none, 
in the actual case, are the men who would make small 
profits, or none, in the hypothetical case. The ability to 
guard against fraud, the ability to foresee impending evil. 



POLITICAL ECONOMY. 221 

to break its force and to repair its effects, are among the 
qualifications for the successful conduct of business. 

194. The Analogy Between Rent and Profits. — It will be 
seen that there is a very close analogy between rent and 
profits. In dealing with rent, we begin with the no-rent 
lands (par. 173), and measure rent upwards from that line. 
In dealing with profits, we begin with the no-profits em- 
ployers, and measure profits upwards from that line. In 
each case, we find that differences in productive efficiency 
(labor and capital being assumed equal) create a surplus, 
which consists of the excess of price over cost, price being 
fixed by the cost of " production at the greatest disadvan- 
tage. '^ 

That analogy we may carry on to the end. Kent, we saw, 
(par. 175) does not enter into the price of produce. In 
the same way, we see that profits do not enter into the 
price of produce, or of products, since the price of these is 
determined by the cost of their production at the hands of 
employers ivlio tliemselves receive no profits. Prices must 
be high enough to enable this class of employers to keep up 
their business: otherwise, the required supply would fall 
short in the market. Prices being fixed so high, by this 
cause, those employers who are able to produce at a less 
cost realize a surplus. Prices, then, are not high lecause 
profits are made ; dut profits are made because prices are 
high. 

No more is it true that profits are obtained by deduction 
from wages. The employers who make profits pay as 
high wages* as the employers who make no profits. The 
reason why wages are no higher than they are, is because 

* In a certain sense, they pay somewhat higher wages, since the 
greater continuity of employment and certainty of payment, which 
belong to the laborers who work for the more successful employers, 
are really as good as a small addition to their wages. 



222 POLITICAL ECONOMY, 

the least competent employers (whose demand is essential 
to taking up the whole supply of labor in the market), can- 
not pay any higher wages and get them back in the price 
of their products. The existence of profits, then, consti- 
tutes no wrong to the laborer. They represent, from first 
to last, the creation of an additional amount of wealth, by 
the skill, energy and prudence of the successful employer. 
Wages would be no greater, were profits to be prohibited. 

195. Lowering the Margin of Production.— The last 
point we shall note, in the analogy between rent and profits, 
is that, in both cases, it is for the interest of the laboring 
class that the ^^ margin of productions^ should not be low- 
ered. In treating of rent, we showed (par. 168) that, if 
cultivation be driven down to inferior soils, not only a larger 
actual amount, but a larger share, of the produce necessarily 
goes to the land-owning class, as rent. Likewise in the 
case of profits, it is for the interest of the laborers, as well 
as of the entire community, that employers of a lower 
grade of industrial efficiency should not be brought into 
the conduct of business. If the margin of production is 
to be lowered, in this respect, not only a larger actual 
amount, but a larger share, of the product will necessarily 
go to the employing class, as profits. Prices are deter- 
mined by the productive capability of the lowest class of 
employers who are actually producing for the supply of 
the market ; and all excess of those prices, over the cost of 
production in the hands of the more capable men of busi- 
ness, goes to these latter, individually, as profits. 

"We see, by this, how mistaken are the views and feelings 
commonly entertained by laborers regarding profits. Gen- 
erally speaki ag, the laboring class have not a little jealousy 
and envy toward the large profits of successful employers. 
But, if we have correctly discerned and stated the origin of 
profits, the only real injury done to the laboring class ig 



POLITICAL ECONOMY. 223 

through the comparative incompetence of those employers 
who realize no profits from the conduct of business. When 
we come to speak of the effects of imperfect competition 
(Ohap. XXIV), we shall have occasion to refer to certain 
causes which tend to bring incompetent men into the con- 
duct of business, and to keep them there, at the expense 
of the community, in general, and of the laboring class 
in particular. 

196. To Whom do Profits Belong? — In treating of rent, 
it was shown (par. 177 to 181) that, under the private 
ownership of land, rents must necessarily go, entire, to the 
owners of land, as such ; and that no economic force could 
be invoked which would have the tendency to carry rents, 
or any part of them, to any other class in the community. 
But it was also shown that the community, the State, 
might, if this were thought wise, lay claim to rents, on 
grounds of political equity. 

Could any such claim be made to profits, on behalf of 
the community, the State ? In such a case, the commun- 
ity, the State, would, in effect, say to the men of superior 
ability: ''You shall continue to carry on business, to em- 
ploy labor and capital, to direct the production of wealth ; 
but the profits you may realize belong to the State and 
must be paid into the public treasury. We will, perhaps, 
allow you some small part thereof, as an encouragement to 
you to do your best ; but we cannot admit that you have a 
right to the wealth which you create by your skill, energy 
and prudence, over and above the wealth which other em- 
ployers, of less ability, can produce with the same amount 
of labor and capital.^* We can, indeed, conceive an Asiatic 
government making this demand ; but such a view would 
be so foreign and so hostile to the ideas and sentiments 
of our people, that it need not be discussed here. 

It may, however, be said that, should any government 



224 POLITICAL ECONOMY. 

undertake thus to confiscate profits, it would surely find 
that, while it could easily prevent individuals from realiz- 
ing profits, it would not bring any wealth thereby into the 
public treasury. The act of the man who killed the goose 
that laid the golden eggs, would be wisdom itself, in com- 
parison with the folly of such a course. The fact that the 
employer is to realize, for his own benefit, all that is to be 
saved, and all that is to be gained, by his prudence, en- 
ergy and skill, is of the very essence of that prudence, 
energy and skill. Were the reward of his exertions to be 
taken from him, the mainspring of those exertions would 
be broken. 

197. The Socialist View of the Employer. — I have 
spoken in this chapter, and frequently throughout this 
book, of the part which the employer performs, in the pro- 
duction of wealth, as I understand it. I do not believe 
that I have one whit exaggerated the importance of that 
industrial function. Those writers, however, called Social- 
ists, who desire to have the State do everything in the 
production of wealth, and who would abolish at once the 
private ownership of land and private enterprise in produc- 
tion, are naturally disposed to take a low view of the im- 
portance of the employer's work. This is, partly, because 
a higher view of that work would go against their own 
scheme ; partly, because many of these writers entertain a 
deep prejudice and even an intense hostility towards the 
body of employers, whom they regard as engaged in rob- 
bing the laboring class. Few of these writers have had 
either the kind of education or the opportunities for ob- 
servation which would qualify them to form valuable opin- 
ions on such a questiou. 



CHAPTER XXI. 

PROFITS, CONTINUED : CO-OPERATION. 

198. What is Industrial Co-operation? — The contemplar 
fcion of large profits realized by the employers has given 
rise to many movements, in this and in other countries, 
which have had for their object to secure to the 
laborers, themselves, fche gains which otherwise the 
employer would reap. These movements may all be em- 
braced under the general term. Co-operation. We shall de- 
vote the present chapter to considering the objects of in- 
dustrial co-operation; the advantages which it would se- 
cure, if successful; the liabilities to loss and failure which 
co-operation encounters; the conditions under which co- 
operation would have the largest chances of success. 

The main purpose which a body of laborers have in view 
in initiating co-operation is to get rid of the employer, by 
doing his work themselves, and thus reaping his gains. 
Seeing that a large amount of wealth is realized by the em- 
ploying class, the}^, not unnaturally, say, why should we 
not employ ourselves? Why should we not get together 
freely, instead of being brought together and hired by some 
one else? Why should we not decide, for ourselves, in 
what line we shall work; buy our own materials; apply to 
these our own labor; sell the goods ourselves; and put into 
our own pockets the entire value of the product? 

I have said that in co-operation the object is to get rid 
of the employer. Unfortunately the more usual, indeed, 
the general, way of putting it is that the object of co-oper^ 

335 



226 POLITICAL ECONOMY, 

ation is to get rid of the capitalist. This form of statement 
is not only erroneous; it is grossly misleading. 

Oo-operation is not going to get rid of the capitalist. Co- 
operation has no tendency to get rid of the capitalist. A 
body of co-operative laborers must have as much capital to 
use as a body of laborers working under an employer. If 
they have not, their failure will be assured from the start. 
They must have just as many and just as good tools; just 
as much and just as good material; just as ample and 
commodious rooms or buildings; just as much water-power 
or steam-power, for a given product. The essence of co- 
operation, I repeat, is that the laborers are to employ them- 
selves. Doing, thus, the employer's work, they hope to 
reap his gains. 

199. The Advantages Sought in Co-operation. — We have 
already indicated the first of the advantages sought for in 
co-operation, viz., to secure for the laboring class that large 
amount of wealth which goes annually, in profits, to em- 
ployers. But there is a second advantage which the more 
thoughtful members of the laboring class see would result 
from the success of co-operation, viz., it would secure to 
the laborer the opportunity to produce wealth independent- 
ly of the will of an employer. Under the present system, 
it remains with the employer to decide, not only what shall 
be produced, and how and when it shall be produced, and 
in what amounts, but, also, whether any production, at all, 
shall take place. The employer's motive in production is 
the profit he expects to realize for himself. Generally 
speaking, he will only produce as he sees an opportunity to 
make a profit. 

It is true that the employer may carry on production for 
a while, out of sympathy for his workmen, even though 
the state of the market is so unfavorable that he does not 
anticipate making much or any profit for himself. It is 



POLITICAL SJG0N0M7. 227 

true that he may even, at times, consent to carry on pro- 
duction at a slight loss, rather than let his customers go to 
others, or close his works. But these considerations cannot 
be relied upon to any great extent or for any long period; 
nor can they be relied upon at all, as against the apprehen- 
sion of considerable loss. In a state of the market which 
causes the employer to doubt, whether, after paying out 
large sums for materials and labor, he will get his money 
back in the price of the products, the most natural course 
for him to adopt is to curtail production, to the extent of 
one-third or of one-half. 

The laborers who are thus allowed to work only on two- 
thirds or half time, cannot rightly complain that the em- 
ployer should protect his own interests. But, if they should 
choose, through co-operation, to take the risks and the re- 
sponsibilities upon themselves, it would be in their power 
to keep up production continuously. No matter what the 
state of the market, they could remain at work, producing 
their goods and selling them for what they were worth, or 
holding them over until a better time. This might be 
much better for them than not working at all. On the 
other hand, it might be much worse for them. Whether it 
should be better or be worse would somewhat depend upon 
the nature of the business;* more, upon the judgment and 
good sense displayed by the co-operators. In any case, it 
would no longer be the interest of the one employer, but 
the interest of the many workmen, which should decide 
whether production were to proceed or not. 

200. Co-operation, in the View of the General EcO' 
nomic Interest. — I have mentioned the two chief benefits 

* For example, in a business where the value of the materials used 
was small, and the value of the product depended mainly on the 
amount and quality of the labor expended, such a plan would work 
much better than in a business where there was a laige outlay. 



228 POLITICAL EGONOMY, 

which the laboring class look to secure for themselves by 
means of co-operation. In addition to these, the political 
economist sees in such a system three possible sources of 
advantage. 

1st. Co-operation would, by the very terms of the case, 
do away with strikes. There would no longer be any one 
to strike against. The employer having disappeared, the 
workmen having become self-employed, those destructive 
contests, in which prejudice, passion and greed take so 
large a part, would disappear, as a matter of course. 

2d. The workman would be incited to greater industry 
and to greater carefulness in dealing with materials, tools 
and machinery. It was stated, in paragraph 46, that when- 
ever men take the position of hired laborers, working for 
wages, some part of that hopefulness and cheerfulness in 
labor, which are the most fruitful source of strenuous ex- 
ertions, is, by the nature of the case, lost. A body of co- 
operative workmen, on the other hand, would have the ad- 
vantage of all these inspirations and incitements which we 
sought to describe in paragraphs 43, 44 and 45. 

3d. Frugality would be greatly encouraged. It cannot 
be doubted that a body of laborers, having an opportunity 
to invest their savings, at once and on the spot, in their 
own business, and, indeed, feeling strongly the need of ad- 
ditional capital to carry-on that business, would come un- 
der more powerful inducements to frugality than a body of 
wage-laborers. 

201. Co-operation from a Still Higher Point of View. — 
In addition to the foregoing advantages which might result 
from co-operation, as viewed by the political economist, the 
moralist and the statesman can discern in this system the 
possibilities of still greater benefits. Co-operation, if it 
could be introduced and maintained, would greatly tend to 
educate and elevate the working classes, in all the elements 



POLITICAL EG0N0M7. 229 

of character and citizenship. It wonld give them a more 
palpable stake in the community; and thus promote peace 
and social order. It would train them to the discussion 
and decision of important questions; and thus at once in- 
crease their general intelligence and teach them moderation, 
prudence and respect for the opinions of others. It would 
strengthen the bonds of society, and would do away with 
many of those feelings of envy, jealousy and distrust which 
keep apart the members of a community. 

202. The Difficulties of Co-operation. — The advantages 
of co-operation being so many and so great, it will natural- 
ly be asked why this scheme, proposed so long ago, sanc- 
tioned by the highest economic authority, appealing direct- 
ly to the self-interest of the laboring classes, advertised ex- 
tensively in discussions relating to labor and wages, has 
not been immediately successful, upon a large scale? How 
is it, that, on the contrary, of the great number of enter- 
prises, of this character, which have been started in Eng- 
land, France, the United States* and other countries, 
only a few have achieved a decided or even a moderate suc- 
cess; while more have failed or been abandoned? 

I answer: the difficulties of co-operation are directly as 
its advantages. The power wielded and profits enjoyed by 
employers make the working classes desire, naturally 
enough, to bring about a different industrial order. Yet, 
when a body of laborers set up for themselves, the result 
very soon shows that the reason why the employer wields 
such arbitrary power and enjoys such large revenues, is that 
he performs a part in modern industrial society (pars. 54 
and 55) which is of supreme importance: in which any- 

* The publications of the American Economic Association contain 
the most recent and reliable accounts of the many and various co- 
operative enterprises which have been undertaken in the United 
States. 



g30 POLITICAL EG0N0M7. 

thing less than the highest abilities of administration an^ 
organization involves comparative, if not absolute, failure. 

203. Is Co-operation Practicable, in a Near Future?— 
The time may come, when a body of laborers, joined to- 
gether for the purposes of co-operative production, will give 
as intelligent a direction, as close a supervision, as rigid a 
discipline, as energetic an impulse, to the work in which 
they are engaged, as the present successful man of business 
gives to the enterprises on which his fortunes and his repu^ 
tation are staked. This may come about, in time; but, for 
one, though believing thoroughly, so far as politics are 
concerned, in a ^'^ government of the people, by the people, 
for the people,"! I see nothing which indicates that, with- 
in the near future, industry is to become less despotic than 
it now is. The power of the Master, ^' the captain of in- 
dustry," has steadily grown throughout the present century, 
with the increasing complexity of commercial relations, 
with the greater concentration of capital, with continual 
improvements of apparatus and machinery, with the multi- 
plication of styles and patterns, with the localization and 
specialization of manufactures. 

No one would rejoice more heartily than the writer to 
gee the working classes rise to the height of the occasion, 
and vindicate their right to rule in industry by showing 
their power to do it. But meanwhile it should be under- 
stood that nothing costs the working classes so much as the 
bad or weak or commonplace conduct of business. Indus- 
try must be energetically, economically and wisely managed, 
no matter who is to do it. Co-operation will only be suc- 
cessful as it results in the production of equally good 
articles, at equally low prices, with those produced in estab- 
lishments controlled by individual employers. 

\ President Lincoln. 



POLITICAL BQOnOMY. 231 

204. A Possible Field for Industrial Co-operation. — I 

have spoken thus strongly of the difficulties of co-opera- 
tion, because I believe that only harm can come to the 
working classes from slurring-over those difficulties, as has, 
with the best intentions, been done by many writers. Not 
a few economists have spoken on this subject as if co-oper- 
ation were the easiest thing in the world to bring about, 
the only difficulty being to get the working classes inter- 
ested in it. It ought, on the contrary, to be clearly un- 
derstood that the difficulties of the scheme are great i^a 
proportion to its advantages; that co-operation can only 
succeed when undertaken by intelligent and high-minded 
men, who will carefully study their business; who will 
put all envyings and jealousies and mean suspicions under 
their feet; who are prepared to do, to endure and to for- 
bear much, for the good they seek; who have magnanimity 
enough to give a cordial support to the managers they shall 
choose, to trust them thoroughly, and to pay them hand- 
somely. 

In speaking thus, I have reference to industry as a 
whole, and especially to its larger branches, which supply 
general markets, and which are subject to competition at 
once searching and far-reaching. There are, however, 
portions of the field of industry where the difficulties are 
less formidable. 

Where (1) a branch of industry is of such a nature that 
it can best be carried on by a small group of workmen, 
rather than in large establishments; where (2) the work- 
men so engaged are substantially on a level, as regards 
strength and skill; where (3) the initial expenditure for 
tools and the running expenditures for materials are small; 
and, especially, where (4) the goods are to be produced 
wholly or mainly for the local market, the difficulties of 
the co-operative system sink to a minimum, while its ad- 



^82 POLITICAL ECONOMY. 

vantages rise to a maximum. It is, therefore, in such 
branches that the experiment of productive co-operation 
should first be tried. Success can be achieved here, if 
anywhere. Should success be here achieved, advantage 
may be taken of the experience thus accumulated and of 
the training thus acquired, to undertake larger and still 
larger enterprises. 

205. Profit-sharing. — The obstacles which beset indus- 
trial co-operation are not encountered by the scheme of 
Profit-sharing, which has been highly recommended by 
many writers and which has been undertaken of late years, 
not, indeed, on a large scale, but in numerous instances. 
The advantages of this scheme, illustrated by many suc- 
cessful examples, have recently been stated in an excellent 
book by Mr. N. P. Gilman. The matter is one of eco- 
nomic and administrative detail, too minute to be treated 
fully in an elementary work of this character. 

The object sought is to interest workmen in increasing 
production and reducing waste and breakage, by paying to 
them a portion of the employer's profits. It is, also, held 
that this system would have the effect to promote good 
feeling between the laborer and the employer, and to di- 
minish the resort to strikes and labor contests. 

The difficulties of profit-sharing are found (1) in the 
smallness of the amount which can thus be distributed 
among the workmen,* without unduly diminishing the em- 
ployer's interest in production; (2) in the suspicions likely 
to arise regarding the employer's good faith, in declaring 

* Suppose, for example, that an employer pays in wages $200,000 
a year, and realizes, on his production, a profit of $15,000. Were he 
to distribute one-third of his profits, this would amount to but 2| 
per cent on his "pay-roll." A workman who earned $500 a year, 
would receive $12.50 bonus. Would he do or forbear much, for 
such a consideration ? (See par. 209.) 



POLITICAL ECONOMY. 233 

the amount thus subject to distribution, unless the work- 
men, or a committee of them, are to be allowed such ac- 
cess to the books and accounts as few business men would 
willingly concede; (3) in the perplexing question, what 
should be done in the, not infrequent, cases where the 
employer realizes a loss. 

The last of these difficulties is, perhaps, the greatest. 
The employer is, not unnaturally, disposed to hold that, if 
the workmen share his gains in good years, they should 
also share his losses in bad years. 

206. Consumptive Co-operation. — I have, thus far, for 
simplicity of treatment, directed my remarks toward co- 
operative enterprises which undertake to produce goods for 
the market. To these we may, perhaps, apply the term. 
Productive Co-operation. There is, however, a very large 
department of business to which the co-operative principle 
can be applied with almost indefinitely less difiiculty and 
risk. This department of business relates to supplying 
consumers, at retail, with the necessaries, comforts and 
luxuries of life. This kind of co-operation may properly 
be called Consumptive Co-operation. 

The distinction between productive and consumptive co- 
operation may be expressed as follows. In productive co- 
operation the laborer seeks to make for himself an income. 
In consumptive co-operation, the laborer seeks to expend 
or to consume that income to the best advantage: to make 
each dollar of his earnings go as far as possible in provid- 
ing subsistence for himself and family. The two things 
do not necessarily go together. A man might (1) earn 
his income by working for an employer, and expend that 
income through a co-operative society; or (2) he might 
earn his income in a co-operative factory, yet expend it in 
purchases from grocers, butchers, and shoe-dealers, here 
or there, according to his fancy or convenience; or (3) he 



234 POLITICAL ECONOMY. 

might both earn his income as a member of one (produc- 
tive) co-operative society and expend it as a member of 
another (consumptive) co-operative society. 

207. The Advantages of Consumptive Co-operation. — 
Among the advantages of consumptive co-operation may 
be mentioned the following. 

1st. The certainty of business. The managers know 
that all the members will purchase their supplies at that 
store or shop. It is, therefore, possible to estimate closely 
the amount of trade to be done, and the quantities of the 
several kinds of goods which will be required. 

2d. The saving of advertising - expenses. It follows 
from the above that the managers of a co-operative store 
or shop are relieved from all expenditures for the purpose 
of attracting trade. They not only do not need to adver- 
tise in the newspapers or on the ''^ dead walls;" they are not 
obliged to spend money for plate-glass windows or for rose- 
wood counters or for electric lights. They can have their 
place of business on a back street, in plain quarters, at a 
low rent; yet their customers will come to them, all the 
same. 

3d. Avoidance of book-keeping and losses by bad debts. 
In Europe, nearly all co-operative stores do business purely 
on the cash principle, l^o one is allowed to take goods 
out of the shop without paying for them, at the time. All 
the expense of recording and ''^ posting'^ small purchases, 
and of sending -out and collecting small bills, is thus 
avoided. An even greater advantage is found in escaping 
losses by bad debts. In ordinary retail trade, under the 
credit system, so common in the United States, those losses 
are simply enormous. 

208. Practical Experience with Consumptive Co-opera- 
tion. — This species of co-operation has had no inconsider- 
able degree of success in England, in the way of shops for 



POLITICAL ECONOMY. 235 

the sale of flour, meats, groceries, dry-goods and other 
articles of domestic consumption. At these shops, annual 
subscribers or members of the association buy goods, gen- 
erally at the ruling prices of retail trade, always for cash. 
At the end of the year or the season, the profits, after de- 
ducting the expenses of supervision and management, are 
divided among the members, either equally or in propor- 
tion to their purchases. The latter is the usual rule. At 
the time of each purchase, a member receives a check, 
showing the amount paid. At the end of the year or sea- 
son, he brings in his checks; and, upon the aggregate 
amount, he receives a dividend, corresponding to the profit 
upon the entire business done. In comparison with ordi- 
nary retail trading, under the credit system, a co-operator 
ought, with good management, to save twenty per cent of 
his income. Moreover, he ought, in this way, to secure a 
better quality of goods, as no one has any interest in cheat- 
ing him. 

209. American Experience. — Here, on the other hand, the 
scheme of consumptive co-operation has not been very 
widely applied ; and, in most cases, has either failed or 
been abandoned. The causes of this small success have 
been the following : 

1st. The indifference of our people, even of the poorest 
classes, towards small savings. The average American will 
work harder than the man of any other nation to make an 
income ; but, in expending incomes, we are the most care- 
less and wasteful people in the world. This is equally true 
whether we are buying domestic goods at the store or using 
them in the household. 

2d, The national passion for taking credit. An Amer- 
ican feels himself insulted if he is informed that he can- 
not carry goods out of a shop without paying for them. No 
matter how easy it would be to bring the money with him, 
or how thoroughly he understands the disadvantages of 



236 POLITICAL ECONOMY. 

the credit system, he yet resents any application of the cash 
principle in his own case. 

3d. The popular unwillingness to take pains, steadily and 
persistently, to secure a proper administration of trusts. 
The same defects of character which have allowed our 
municipal affairs to fall so largely into the hands of incom- 
petent or unworthy persons, have wrecked many of the 
most promising co-operative enterprises undertaken in this 
country. Such an enterprise starts off with a great deal of 
zeal on the part of the members ; the best men are put in 
charge ; accounts are carefully supervised ; the buying and 
selling are well looked after. In the course of time, the 
interest wanes ; poorer men get in power ; the administra- 
tion becomes lax. The usual result is either that, after a 
few years or months, the store or shop is shut up ; or else, 
the last manager makes an offer for the goods and fixtures, 
and sets up business for himself. Such has been the his- 
tory of thousands of "union," "granger" or "sovereigns 
of industry " stores, in the United States. 

There is no essential difficulty regarding consumptive co- 
operation. Like most good things, however, it is only to 
be had with labor and pains. Whenever any considerable 
number of people care enough about the advantages of this 
system to give it thought, effort and a reasonable portion 
of time, they can, in this way, secure for themselves an im- 
portant economic advantage. 



CHAPTEE XXIL 
INTEREST. 



210 The Point we have Reached.— Let us again stop to 
note tiie point we have reached, in the distribution of wealth 
We have now disposed of all that body of wealth which 
constitutes the excess of price over the cost of production. 
We have seen (Chapter XVIII) that the differences m pro- 
ductiveness existing among the several grades of soil, 
actually contributing to the supply of the market, give rise 
to a surplus, in the case of the crops raised upon all the 
better grades of land, which surplus goes, under the name 
of rent, to the owners of the soil. Secondly, we have seen 
(Chapter XX) that the differences in productive power 
existing among the several grades of employers, actually en- 
gaged in conductmg the business of the community, give 
rise to a surplus, in the case of all goods produced by the 
more efficient employers, which surplus goes, under the 
name of profits, to those employers. The wealth, whose 
distribution we are now to consider, is that which remains 
after the Surplus, arising from the two causes just men- 
tioned, has been disposed of. 

The body of wealth thus to be distributed is, as we have 
previously stated (par. 165), equivalent to that which luould 
have been produced, had all the labor and capital engaged 
in production been applied to soils of the lowest grade 
actually cultivated (or to the produce of such soils); and 
been so applied under the direction and control of em- 
ployers of the lowest grade of industrial efficiency^ ihe 



238 POLITICAL ECONOMY. 

body of wealth, thus made up, is to be distributed among 
two classes of industrial agents, viz., capitalists and 
laborers. To no part of this has either the landlord or the 
employer any economic claim. Both these parties received 
all they were entitled to, when they carried away the sur- 
plus which represents the excess of price over cost. All 
that enters into the cost of production consists of the exer- 
tions and sacrifices of capitalists and laborers ; and these 
two classes are entitled to divide among themselves, in one 
proportion or another, all that part of price which rep- 
resents the cost of production. 

211. Capital. — In Chapter VIII, we sought to describe 
the origin and the industrial office of capital. It was there 
shown that capital arises wholly out of savings. In this 
fact is found an abundant justification for the claim of the 
individual to the full use and enjoyment of his capital. 
If a man^s wealth is his to spend, it is equally his to save. 
If there be any diiference between the right of a man to 
the wealth he is to spend and the right of another man 
to the wealth he is to save, that difference is in the favor of 
the latter, since the saving and accumulation of capital 
is, by general admission, greatly for the advantage of the 
community, affording the means for carrying-on and en- 
larging production. 

212. Interest. — The economist applies the term, interest, 
to that part of the product of industry which constitutes 
the proper economic return to the capital employed in pro- 
duction. That term is equally used, whether the owner of 
capital himself employs it in production, or loans it to 
another, to be by him employed. In the latter case, there 
is an actual payment, by the debtor to the creditor, of a 
certain amount, under the name of interest, as the con- 
sideration for the loan. In the former case, the amount 
which the economist considers as interest is not distinctly 



POLITICAL ECONOMY, 239 

separated and paid over under that name. But it is there, 
all the same ; and should always be so distinguished in 
economic reasoning. 

213. The Right to Interest. — The right to interest is 
found in the right to capital. We have said that if a man 
has a right to wealth in order to spend it, he has equally a 
right to wealth in order to save it. Likewise, if a man has a 
right to wealth which he has, by self-denial and sacrifice, 
saved, he has the right either to use it, himself, in further 
production, or to receive the proper fruits of it from another, 
who may wish to use it in production. Strangely enough, 
this right was for many centuries denied among Christian 
nations. The grounds for this denial will be given in the 
next paragraph. 

214. Objections to Usury. — Until within two or three 
centuries, "usury," or the taking of interest upon loans, 
was forbidden in many countries, of which we may take 
England as an example. One reason for this was doubt- 
less found in the prohibition, in the Old Testament, of the 
taking of usury by one Hebrew from another. But this 
prohibition of usury among the members of *'the peculiar 
people " was clearly one of the means resorted to for keep- 
ing them apart from their idolatrous neighbors ; and was 
in no sense intended as a moral precept of universal 
application. 

Another, and perhaps more influential, reason for the pro- 
hibition of usury was found in a mistaken notion regarding 
the nature of the transaction involved. This mistaken 
notion was embodied in a dictum of Aristotle, the great Greek 
philosopher, that, inasmuch as money does not produce 
money y nothing ought to be exacted for the use of money.* 



. * The honor of having first exposed the fallacy lying in Aristotle's 
dictum is attributed to John Calvin. 



240 POLITICAL ECONOMY. 

The error here lies in the assumption that interest is paid 
for the use of money ; whereas, in fact, interest is paid for 
the use, not of money, but of capital. Now, though 
money itself does not produce '^ after its kind," most of 
the things which a man can buy with money do produce 
after their kind. If a man borrows money and with it buys 
a hundred sheep, those hundred sheep may, in a few years, 
become five hundred. If a man borrows money and with 
it buys grain, that grain will, if duly sown and cultivated, 
bring forth " some thirty, some sixty, and some an hundred 
fold." If a man borrows money and with it buys mer- 
chandise, he may, by shrewd selling, make twenty or thirty 
per cent upon his stock. So, we see, that, if, in the case of 
every loan, money were actually borrowed, all the things 
which should be judiciously bought with that money might 
be made to produce "after their kind." 

In the vast majority of cases, however, where interest 
is paid, no money, at all, is used in the original transaction. 
A man buys a house, and promises to pay the price, at some 
future time, *'with interest," meanwhile. Interest upon 
what ? Interest upon money ? He has had no money. The 
interest promised is upon capital, invested in the house. A 
merchant or a manufacturer buys a stock of goods, and 
gives his note promising to pay the price, ^^with interest." 
Not interest upon money, for money was not used in the 
transaction ; but interest upon capital, in the form of mer- 
chandise or materials, which have been entrusted to him 
and out of which he expects to make a profit, which he is 
to share with the owner of the capital. 

In spite of all the objections of the schoolmen and the 
churchmen, the philosophers and the common people, the 
taking of interest was, about the middle of the sixteenth cen- 
tury, made lawful in England, although public opinion and 
the views of the clergy were still deeply hostile to it. But, 



POLITICAL ECONOMY, 241 

while the law allowed interest to be paid, it undertook 
to fix a rate above which interest should not go; and simi- 
lar enactments have been made in nearly all countries, and 
still remain the rule to the present time. Of the expediency 
of such restrictions upon the rate of interest we shall speak 
in a subsequent paragraph. 

215. How Much Shall the Capitalist Receive?— We 
have seen that there is an abundant justification of interest 
in the fact that production is increased by the use of capi- 
tal. How much of this increase shall go to the owner of 
the capital ? Shall he receive the whole amount by which 
production is so increased? I answer: (1) This will not be 
so as a matter of course ; (2) that, in fact, the amount go- 
ing to the owner of capital, as interest, is only a part of 
that increase ; (3) that, in general, the amount received as 
interest is but a small part of the amount by which wealth 
is eohanced through the use of additional capital. 

What, then, determines the amount which shall be paid as 
interest ? Properly to answer this question, we must again 
ask, what is interest ? Interest is the price paid for the 
use of capital. What determines price, in any and in all 
cases? There can be but one answer to this question. 
Price (par. 95) is always, only and wholly controlled by 
demand and supply. The price paid for the use of money, 
interest, is, therefore, entirely a matter of the supply of, and 
the demand for, capital. Now, the supply of any article 
being determined, price must fall and continue to fall un- 
til the demand has leen found which will take up the last 
portion of that supply. This is what happens in regard to 
the price paid for the use of capital, that is, interest. 

216. The Process Illustrated. — Let us illustrate this by 
reference to a community which has been some time estab- 
lished in its present seats, and in which large amounts of 
capital have already been applied to production. Farms 



242 POLITICAL ECONOMY, 

have bsen opened and cultivated ; but there is 3till much 
good land which might be cleared of timber, and there is 
a large area of swamps, rich with the vegetable mould of 
centuries, which might, by the application of labor and 
capital, be drained. Mines have been opened and worked ; 
but there are still richer mineral deposits, deeper down in 
the crust of the earth, or higher up among the mountains, 
which there has not yet been capital enough to reach. 
Wood and timber have been cut from the neighboring for- 
ests ; but there are tracts of better timber which could only 
profitably be brought to market through the construction 
of a tramway or railway. Vegetable and animal fibres have 
been spun and woven for clothing ; but it has been by the 
spinning-wheel and the hand-loom, there not having been 
capital enough to build dams upon the rivers, to put up 
mills and to fill them with machinery. 

217. The Last Portion of the Supply. — Now, suppose that 
capital, to the value of ten millions of dollars, were to be 
made available for the use of the community, constituting 
the present supply of capital for loan. Some of this capital 
would be so much needed, would have the capability of so 
greatly increasing production, that, rather than not have 
it, the borrowers could afford to pay 18^ per annum. If 
the amount which was needed in this degree was ten mil- 
lions, then 18^ would be the rate of interest. But if only 
three millions were needed in this degree, 18^ would not 
be the rate of interest, for such a demand would not take 
up the whole supply. There might be other enterprises, 
agricultural, commercial, manufacturing, which could put 
additional capital to so good a use that, rather than not 
have it, the persons concerned would pay 12^. If, however, 
only two millions mx)re were needed in this degree, neither 
18^ nor 12^ would be the rate of interest, but something 
less. We might suppose that there were other enterprises 



POLITICAL ECONOMY. 243 

■whicli could afford to pay lOfo, and others, still, which 
could afford to pay 8^ ; but neither 10^ nor 8^ would he 
the rate of interest unless the whole supply was taken up 
by these successive demands. That result might not be 
reached without applying the last million of dollars to 
enterprises which could only afford to pay 6^. This being 
so, 6^ would become the rate of interest, not for that mil- 
lion alone, tut for the luhole ten millions. Those who could 
have afforded to pay 18^ for the use of capital, rather than 
not have had it, will still get the use of it for 6^. 

218. The Law of Interest.— The rate of interest 

IS DETERMINED BY THE PRODUCTIYENESS OF THAT LAST 
(considerable) part of the SUPPLY, WHICH IS AP- 
PLIED TO INDUSTRY ''AT THE GREATEST DISADVANTAGE.'' 

The productiveness of this portion determines the price 
to be paid for the whole. If, in the instance above given, 
the supply had been so great that the last portion of the 
demand (necessary to take up the whole supply) had to 
come from enterprises which could only afford to pay 4^ 
then 4^ would have been the rate of interest on the entire 
body of capital. 

It will be seen that the capitalist does not receive 
the whole amount by which production is increased through 
the use of capital. He receives that whole amount only in 
the case of those industrial enterprises from which proceed 
the last (considerable) portion of the demand which is 
necessary to take up the supply. In all other cases, the 
industrial enterprises concerned derive a benefit from the 
employment of the additional capital, for which they pay 
only in part. 

219. The Inexpediency of Usury Laws.— We have, I 
think, gone far enough in our subject to be in a position 
to see the inexpediency of laws, such as exist in most coun- 
tries and in most states of the American union, prescribing 



244 POLITICAL ECONOMY. 

a rate of interest which it shall not be lawful to exceed. 
The reason for these laws is found in the feeling that it is 
very hard that persons who wish to use capital productively 
should be obliged to pay a high price for its use. And so 
it is. But what is the real cause of this hardship ? It is 
that capital is scarce in that community. The rate of 
interest will only be high when capital is scarce, in com- 
parison with the demand for its productive use. 

But, if the scarcity of capital is the trouble, is this to be 
cured, or is it to be made worse, by laws which prevent the 
owners of capital from getting the full price for it ? Clear- 
ly, the latter. If the scarcity of capital creates a high price 
for its use, the true way to cure the evil is to let that price 
be freely paid and received. Then, every one who is in a 
position to accumulate capital will set himself to do so with 
double eagerness, in order to get the benefit of that high 
price. Moreover, men in other communities, where capital 
is more plentiful, will send their capital thither, to get the 
higher rate. In this way, the painful need of capital, 
which is indicated by excessive interest, will be supplied 
as rapidly as, in the nature of the case, is possible. 
A high rate of interest, freely allowed, is the best and 
speediest cure for the evil of a scarcity of capital. 

220. Evasioiis of Usury Laws. — I have spoken, above, of 
the importance of allowing interest to be freely and openly 
paid, whatever the rate which existing economic conditions 
may determine. As a matter of fact, usury laws can al- 
ways be evaded, in any one of many ways. This may be 
done by a tonus, or premium, upon the loan ; by a com- 
mission to an agent, who turns over the greater part of it 
to the lender, as extra interest ; by selling goods at a 
fictitious price, the excess over the real price being in the 
nature of extra interest; by ^^dry exchange,^' as when a 
note is made payable in another city, and '^exchange" 



Political economy. ^45 

(pars. 124-126) is charged for bringing the money home, 
although in fact the note has not left the city where the 
loan was made. 

The effect of these and many other modes of evading 
usury laws is simply to make it harder for the man who 
already finds it hard enough to borrow. They really enhance 
the price to be paid for the use of the capital which belongs 
within the community; and they serve as a great obstacle 
to bringing in capital from communities on the outside. 
In a high degree, therefore, usury laws defeat their own 
object. 

221. False Interest: Insurance of the Principal. — We 
have thus far spoken as if, in the same market, there could 
be but one rate of interest at a given time. Yet we know 
that, in any market, notes are discounted every day, at 
varying rates of interest. How is this ? I answer, a great deal 
which goes under the name of interest is not true interest, 
but is in the nature of Insurance upon the capital, or principal 
sum lent. 

For example, a capitalist has thirty thousand dollars 
which he intends to loan. Ten thousand of this he 
'^places" upon a ''^ bottom mortgage," at bfo. Here he has 
for his security improved real-estate, which is worth at least 
twice as much as the sum lent. This 5^, then, is the true rate 
of interest, at that time and place. With another ten thou- 
sand dollars, the capitalist buys first-class business-paper, 
bearing 6^ interest. The security here is good ; yet all mer- 
chants are liable to fail, through the bankruptcy of others, 
through embezzlement by their clerks or cashiers, or through 
some tremendous fall of prices. Consequently, an insurance 
of one per-cent is here demanded, over and above the true 
rate of interest. On the same day, the capitalist buys ten 
' thousand dollars in the bonds of a new railroad company, 
which promise 7^ interest. Here the investor takes the 



y. 



246 POLITICAL ECONOMY, 

risk that the railroad may not prove a success, either 
through being badly located or being badly managed ; and 
for this risk he demands an insurance of two per-cent, per 
annum, upon the principal. 

The total amount of this false interest or real insurance, 
in case of loans, is very great. On the very day when Brit- 
ish " three per-cents^^ are selling at par, Eussian " five per- 
cents" and Turkish ^'^ten per-cents" may be at a discount. 
The man who lends to the British government runs 
no risk worth thinking of. The man who lends to 
the Russian government runs a considerable risk. The 
man who lends to the Turkish government runs a 
frightful risk. On the very day when first-class business- 
paper is discounted at 5^, the notes of doubtful firms are 
being "shaved" at all the way from ten to twenty-five 
per-cent. 

222. Extra-hazardous Loans. — Speaking generally, the 
amount promised as extra interest on very hazardous loans 
and investments, is less than the proper premium of in- 
surance for the risk taken. The losses through such loans 
and investments, in any considerable term of years, are 
enormous, far exceeding the value of the extra interest re- 
ceived. The people who make such loans and investments 
are gambling ; and, like most gamblers, they lose. 

Persons who, in a community where the proper rate of 
interest is 5^, buy bonds which promise to pay ten or fifteen, 
do not commonly act upon anything like a real judgment 
as to the probabilities that the bonds will be paid when 
due. They are simply tempted beyond what they are able 
to bear. The offer of an extravagant rate of interest over- 
comes their prudence. They buy a very poor thing be- 
cause they can buy it at a very low price; and almost 
invariably find they have been cheated, at that. They re- 
ceive one or two payments of interest, which the managers 



POLITICAL BGOnOMT, Mt 

make in order to hook the last gudgeon in the pool ; and, 
after that, their bonds are mere waste-paper. No prudent 
person will ever invest any money which he cannot easily 
afford to lose, in any enterprise which promises a rate of 
interest greatly above that which is paid by well-established 
business houses. 

223. Differing Rates of Interest in Different Markets. — 
We have said that, in the same market, at the same time, 
there is but one rate of true interest, the apparent differ- 
ences being due, either to payments in the nature of insur- 
ance upon the principal, or else to the effects of ignorance, 
misrepresentation, etc. Broadly speaking, this is true. 
In different markets, however, at the same time there may 
be widely differing rates of interest. Thus, twenty years 
ago, the loan of capital could be obtained, upon what was 
locally regarded as good security, for 4^ in London, as 
freely as for 6^ in New York ; or 8^ in Chicago ; or 12^ 
in Iowa or Kansas. 

Whence these differences ? In some degree, doubtless, 
these successive additions of interest, as capital passed west- 
ward, were in the nature of insurance. In each case, the 
security might be as good as could ordinarily be obtained 
in that community. Security, however, is a relative term : 
what would be deemed ample security in one place might 
not pass the scrutiny of lenders, without question, in an- 
other. Generally speaking, the older a country is, the 
greater the permanence of economic relations ; the more 
does industry settle down within traditional limits ; the 
higher is the value assigned to commercial reputation ; the 
more carefully are the men selected who are to control the 
agencies of production and trade ; the fewer are the 
chances of revolutionary changes in business. 

224. Disinclination of Capital to Emigrate. — But not 
all, or even the greater part, of the differences which have 



24a POLITICAL ECONOMY, 

been noted, are due to this cause. It is the disinclination 
of capital to emigrate, which allows such wide differences 
in local rates of interest. In part, this disinclination is 
due to a suspicion that strangers may not be fairly dealt 
with by courts and by officers of the law, in case of seiz- 
ures or foreclosures. In part, it is due to a fear of war, 
which would necessarily cause a suspension of interest-pay- 
ments, if not forfeiture of the principal. In part, it is 
due to the fact that investments made at a distance must 
generally be made through an agent, whose bad faith or 
weak judgment may cause the loss of the whole sum in- 
vested. 

The main cause, however, of the disinclination of capital 
to emigrate is found in (1) the inertia of capitalists, mak- 
ing them ready to accept lower rates upon the spot than 
could be obtained through effort and inquiry at a distance; 
and in (3) the ignorance of capitalists, from the necessary 
lack of information as to the rates of interest prevailing 
elsewhere. 

The disinclination of capital to emigrate is something 
which changes greatly, with changing moods of the public 
mind. At times, the owners of capital are buoyant and con- 
fident, and feel little hesitation in investing their capital at 
a distance. At times, the owners of capital are even cred- 
ulous ; and are readily " taken in" by plausible promises 
and prospectuses from abroad. 

The disinclination of capital to emigrate, moreover, 
tends to diminish from age to age, as the communication 
of news, by post and telegraph, becomes easier; as the peo- 
ples of different cities and different countries know more 
about each other ; and as nations learn to treat foreigners 
with greater fairness. Consequently, there is a constant 
tendency to reduce local differences in the rates of interest. 



POLITICAL ECONOMY. 249 

225. Contrasts between Rent and Interest. — We are now 

in a position to contrast rent and interest with each other, 
in certain important respects. 

First, we have seen (par. 173) that the whole theory of 
rent rests on the assumption that there is a body of no-re at 
lands. These serve as The Base, from which to measure 
upwards the successive degrees of productiveness of lands 
which bear a rent. 

In the theory of capital, there is nothing corresponding 
to this. The economist does not find any no-interest capi- 
tal. In theory, all capital bears an interest ; and all por- 
tions of capital bear an equal interest. If one portion, in 
fact, brings its owner no interest, or brings an interest be- 
low that obtained by other portions, this is because of ig- 
norance or accident or fraud or mistaken calculations. It 
is not due to the nature of the capital itself. 

226. The Rate of Interest Tends to a Decline.— The 
second marked difference between interest and rent 
may be expressed as follows: Rent tends to increase 
with the increase of population and with the prog- 
ress of wealth. On the contrary, interest tends to de- 
cline. This is because the amount of capital which can 
be created, in any country, is not, like the amount of land, 
a fixed quantity. There is no natural limit to the wealth 
which can be »saved and accumulated, within any district, 
by the industry and frugality of an intelligent, skilful and 
enterprising people. Even within a single generation, we 
have seen the rate of interest decline in New England from 
six per-cent to four and a half, and even four ; while, in 
many parts of the West, the decline, during the same pe- 
riod, has been greater. In England, interest upon the best 
security does not now exceed three per-cent ; while addi- 
tional capital applied to the land hardly returns as much 
as two per-cent. 



250 POLITICAL SJG0N0M7, 

227. A Popular Fallacy. — We close this chapter with a 
reference to an erroneous notion which is always likely to 
be widely spread in certain stages of industrial society. 
This is the notion that the rate of interest can be artifi- 
cially lowered by the manufacture of large amounts of 
paper-money. What we have seen regarding the nature 
of interest ought to show the fallacy of this opinion. 

A scarcity of capital means a deficient supply of tools, 
implements and machines ; of live-stock ; of materials for 
manufacture; of food and clothing, to support men while 
laboring on public works, or otherwise engaged in pro- 
ductive industry. It means that much-needed roads and 
bridges, wharves and warehouses, dwellings and barns, 
mills and factories have yet to be constructed, with scanty 
means for doing it. A more bountiful supply of paper- 
money is not going to bring these things into existence ; 
and, consequently, can do nothing to meet the real wants 
of the community. On the contrary, by unduly exciting 
speculation and causing great and rapid fluctuations in 
prices (par. 144) an excess of paper-money is certain to 
disturb and impair production, and to divert consumption 
from more to less useful objects. 



CHAPTER XXIII. 
WAGES. 

228. The Residual Share of the Product of Industry.— 

We have now reached that share of the product of industry 
to which I venture to apply the term Residual. I call 
wages the residual share, not because it is the last in order 
of treatment, but because, in my view, wages comprise the 
residue (or all which is left) of the product of industry after 
the three other shares have been taken out, the amount of 
those three shares being determined by economic laws 
which I have sought to state. 

We have seen (par. 165) that the landlord and the em- 
ployer divide between them all that part of the product of 
industry which we call the Surplus. That is, rent and 
profits together take all of price which is in excess of the 
cost of production. This leaves the capitalist and the la- 
borer to divide between themselves all of price which repre- 
sents cost of production. 

Starting from this point in the last chapter, we inquired 
what part of this total amount the capitalist should receive. 
We found that the sum which should go to capital, as in- 
terest, is determined by the productiveness of the last (con- 
siderable) portion of the supply of capital which finds a 
borrower. The rate of interest, thus determined, is paid 
upon all the capital in the market, and no more, except so 
far as risks to the principal sum lent require additional 
payments, in the nature of Insurance, Interest having 

^1 



252 POLITICAL ECONOMY, 

been thus taken out of the product of industry, all that re- 
mains belongs to the laboring class, as wages. 

229. A Position of Vantage. — If the laborer's position, 
in the distribution of wealth, is really that of the residual 
claimant, that position is clearly one of vantage. If I, 
with three others, own the whole of a thing, and if the 
shares of my fellows are fixed, by agreement or by law, any- 
thing which makes that thing more valuable, as a whole, 
inures entirely to my benefit. Now, we shall see in what 
follows (taken in connection with what was said in Chapters 
VI and VII, regarding the efficiency of labor), that it is 
always within the power of the laboring class, by greater 
energy, carefulness and skill, to increase the product of 
industry. It is, therefore, always in their power to improve 
their own condition; and, if they duly look after their own 
interests in distribution, they will reap the entire fruit of 
whatever additional exertions and sacrifices they may make 
in production. This certainly is the most hopeful view 
that can possibly be taken of the economic position of the 
laborer. 

230. The Productiveness of Labor is the Source of Wages. 
— "When an employer hires labor, it is wholly with a view to 
the product of that labor. He hopes that the product will 
be large enough to leave a profit to himself. We have seen 
(par. 190) that there are always some employers who are 
destined to be disappointed in this expectation : employers, 
who, after all their care, pains and anxiety, will realize no 
profits, properly so called. Competition will surely bring 
this about. It will inevitably bring prices down to the 
point where the least efficient employers supplying the 
market can only get back what they have expended, with a 
bare living for themselves : a living no better than that ob- 
tained by the more fortunate members of the laboring class. 

But whether any individual employer does or does not 



POLITICAL ECONOMY. 253 

realize a profit^ it is only in this expectation that he employs 
labor at all; and it is only out of the product of labor that 
he can hope to realize a profit. All employers in the 
market, then, competing among themselves for the profits 
of employment, the price of labor, i.e. wages, will, if the 
laborers properly look after their own interests, rise to the 
point which is determined by the productiveness of labor 
at the hands of the least competent employers. All which 
these employers can produce by means of labor, they will 
be obliged to pay over in wages, subject only to the deduc- 
tion of rent and interest. If, then, the productiveness of 
that labor be, by any cause, increased, the employers can 
afford to pay correspondingly higher wages; and this they 
will be compelled to do, if, as we said, the laborers properly 
assert their own interests. 

The rate of wages, determined by the productiveness of 
labor at the hands of the least competent employers, will 
become the rate of wages for all labor. The more efficient 
employers will pay the same wages for labor; and will make 
a profit corresponding to the productiveness of labor under 
their superior management. This, then, is the law of wages. 

231. How the Productiveness of Labor may be Increased. 
— It is not necessary to repeat here what has been said at 
so much length in Chapters VI and VII. We have there 
enumerated the principal elements which make up the 
efficiency of labor. Most of those elements, it is clear, are 
largely within the control of the laborers themselves. If 
they will put more zeal into their work; if they will be 
more careful of materials and machinery; if they will study 
their trades and make themselves thorough masters of their 
business, they can greatly increase their productive power. 

Doubtless the chief reason why the laboring classes, as a 
whole, have not been more anxious and earnest to increase 
their industrial efficiency, is because they have failed fully to 



254 POLITICAL ECONOMY. 

appreciate, in many cases have failed at all to apprehend, 
the true relation between the producfciveness of labor and 
the rate of wages. For this failure there are two causes. 

First. They have been taught, and they have generally 
believed, that their wages came out of a fund * which the 
emplo3dng class held for their benefit, instead of their 
wages being their own creation. 

Secondly. Because they worked for wages stipulated in 
advance they have thought that all they had to do was to 
earn their wages for that piece of work. 

But why were the stipulated wages no higher 9 Because 
the productiveness of their labor, as understood by their 
employers, was no greater. An increase of their productive- 
ness would, of course, not give them higher wages under 
their present contract; but it would constitute a sufficient 
economic reason for higher wages under their next contract, 
and under all succeeding contracts. Employers, I repeat, 
will always be obliged to pay wages corresponding to the 
(known or anticipated) productiveness of labor at the hands 
of the least competent employers; and laborers have only 
to cause it to be known, or reasonably anticipated, that 
their labor will be more productive, in order to secure higher 
wageso 

All the foregoing reasoning assumes, as we gave notice in 
par. 162, that perfect competition exists throughout indus- 
trial society. We shall see, in the next chapter, what is 
required for perfect competition; and what are the con- 
sequences of a failure to meet those requirements. 

232. Particular Wages. — What we have thus far said, 
concerning wages, has all borne upon the question, what 
part of the total product of industry shall go to the labor- 
ing class as a whole. To this subject we might apply the 

* Called by most English and American ecopomists The Wages^ 
Fund. 



POLITICAL ECONOMY. 255 

term. General Wages. There remains to be briefly con- 
sidered the subject which we may call Particular Wages, 
under which we discuss the question why wages in one em- 
ployment are higher or lower than in other employments; 
and attempt to account for such differences. 

The range of wages, between highest and lowest, in any 
community, even among able-bodied men, is very great. 
The theoretical minimum of wages is, of course, the amount 
necessary to keep the laborer alive and in strength to work, 
and also to rear children to take his own place in the in- 
dustrial order. At least as much as this the employing 
class must pay for any kind of labor, because, otherwise^ 
they could not long have labor at all. 

This minimum of wages, viz., necessary subsistence, is 
hardly known at all in this country. There are few Ameri- 
can families, which have not lost the " bread-winner,^' but 
could actually support life upon from one-half to one-third 
of the amount which they have to spend. Of this any one 
can readily satisfy himself by observing how the Italians 
and people from other foreign countries, where a low stand- 
ard of living prevails, eat, dress and house themselves, when 
they first come among us. It is not, then, necessary that 
the actual minimum of wages shall be equal only to the cost 
of bare subsistence. Whether it shall be so, or not, depends 
upon causes which are mainly within- the control of the 
working classes themselves. 

In the distribution, among the several classes of laborers, 
of that total amount of wealth which the whole body of 
laborers are to receive, demand and supply are the all-ef- 
fective agents. Generally speaking, the lowest wages, as 
among able-bodied men, are received by those who have 
nothing but muscular strength to offer ; who are able to 
lift and carry heavy loads, to strike powerful blows or to 
wield the shovel for hours without tiring ; but who have 



266 POLITIGAL ECONOMY, 

little general intelligence and no technical skill. Suclh 
persons, who are commonly spoken of as day-laborers 
(whether actually employed by the day or not), generally 
receive the lowest wages paid. This is simply because the 
supply of such labor is very abundant. The great major- 
ity of all who grow to manhood can do this sort of work. 
It is only as a man is able to do some kind of work which 
the great majority of laborers cannot do, that he lifts him- 
self out of this class, and his wages rise above those of a 
common laborer. 

How high they shall rise, will depend (1) upon the de- 
mand for the special service which he is qualified to render, 
and (2) upon the number of persons who compete with 
him for the privilege of rendering that service. A dis- 
tinguished economist once told me that he had seen, in 
the books of a brass-manufacturing concern of this country, 
entries which established the fact that a certain brass- 
moulder had for a long time received wages averaging 
eighteen dollars a day. All around this man, were other 
moulders, men of great skill, who were glad to earn four 
or five dollars a day. This man was able to do something 
which they, with all their trying, could not effect. Every- 
thing which he touched took on a grace, which was worth 
money in the market. The ordinary brass-moulders, again, 
were receiving wages two or three times as large as those 
received by the day laborers and heavy porters of the 
same factories. This was because, and only because, with 
a given demand for such work, the supply, i.e. the num- 
ber, of persons capable of doing it, was closely limited. 
That work requires great nicety of touch, accuracy of per- 
ception, sound judgment and executive force. The man 
who is to do it well, must not only have a good nana and a 
good eye ; but he must also have a good head. A stupid, 
unobservant person, is not fit to undertake \i j and no sm- 



POLITICAL EO0N0M7. 257 

ployer could afford to allow such a person to do the work, 
were he willing to do it for nothing. 

Had we such a system of public education as we ought 
to have, by which all the powers and faculties of the child 
were called into exercise and taught to work together liar- 
moniously and enthusiastically, much of the difference that 
now exists among the wages of the laboring class would 
disappear; the number of those who were capable of per- 
forming the higher parts in production would be vastly 

We must put altogether aside the notion that labor is 
compensated according to some scale of dignity or moral 
worth. Some kinds of work, which pecuharly require the 
use of the noblest of the human faculties, such as taste and 
imagination, or which bring into special exercise the great- 
est of the human virtues, such as patience, fidelity and the 
spirit of self-sacrifice, are more meanly compensated than 
others which make no such requirement. It is all a question 
of demand and supply. Some occupations which are pe- 
culiarly loathsome and revolting in their character brmg 
very high wages, because the nature of the work to be done 
diminishes the number of those who will offer themselves 

for the service. 

Dangerous employments sometimes yield very high wages. 
This should always be so; but the multitude of -broken 
men- in every community, that is, men who have been 
made desperate or reckless by misfortunes or by bad habits, 
constitute a reservoir from which, at any time, may be 
drawn those who will render the most dangerous services 
at wages which afford no adequate compensation for the 
risk to life and limb.* Just s o far as the moral and mtel- 

*The reader may be interested to glance over the figures which 
show the comparative hardships and exposure to accidents and disease 
iadifferentkindsof laborandprofessionalservice. Doctor Neison, an 



25B POLITICAL ECONOMY. 

lectual condition of the laboring class is improved, and, 
especially, as the vice of drunkenness is banished, will those 
laborers who are required, for the benefit of society, to per- 
form work which is dangerous, painful, or exceptionally 
disagreeable, receive additional compensation therefor. 

233. The Wages of Women. — A great deal of attention 
has been directed, in these late days, to the wages received 
by women who are obliged to leave their homes and go into 
"the market for labor,'* to earn their bread; and a great 
deal of very bad reasoning has been indulged in upon this 
subject. On the one side, philanthropists and sentimental- 
ists have talked of what working women ought to receive, 
as if the question of wages were an ethical instead of an 
economic one; and have railed at employers because they 
paid women at the rates current in the market, as if it were 
the business of employers to do anything else. On the other 
hand, economists have been too apt to sneer at efforts to ad- 
vance the condition of working women; and have talked of 
*' demand and supply," as settling the whole question of 
women's wages, without recognizing the fact that tliei^e are 
moral and intellectual elements m supply and in demand, 
which are subject to man's volition and conscious activity. 

eminent actuary, states that the meaa annual mortality in England, 
between twenty-five and sixty-five years, is, in the clerical profession, 
1.12 per cent; in the legal, 1.57; in the medical, 1.81. In domestic 
service, the mortality among gardeners is only .93 per cent; among 
grooms, 1.26; among coachmen, 1,84. Of the several branches of 
manufacture, paper shows a mean mortality of 1.45; tin, 1.61; iron, 
1.75; glass, 1.83; lead, 2.24; earthen-ware, 2.57. Among the dif- 
ferent kinds of mining, iron shows a mean mortality of 1.80; tin, 
1.99; lead, 2.50; copper, 3.17. 

In some of these cases, the extraordinarily high mortality is due to 
the poisonous fumes which are given out; in others, to the fact that 
the air is filled with fine particles, which penetrate the bronchial 
tubes and lungs, causing early death; in others, to the intense heat 
in. which the work has to be done. 



POLITICAL ECONOMY. 259 

The supply of women's labor is^ unfortunately, not greatly 
within control. That depends chiefly upon the needs of 
women. Generally speaking, women will, if they are free 
to choose, prefer to remain within the household, devoting 
themselves to making the home comfortable and beautiful, 
rearing and training the young, and enjoying social pleas- 
ures. If women are driven out into the market for labor, 
it will generally be because of misfortunes, the sickness or 
death of ^^ the bread-winner," or the scantiness of the wages 
which the father or brother is able to earn. 

But while the supply of women^s labor is, thus, not greatly 
subject to control, the demand for that labor can be very 
much influenced by human choices. We have, in our day, 
seen an enormous extension of the field open to women, 
which has been due to a better understanding of the sub- 
ject ; to the improved education of women themselves ; and 
to a more generous consideration of the wants of those, 
of this sex, who are obliged to earn their own bread. This 
good work can go on almost indefinitely. Many an em- 
ployer could, if he saw a little more clearly on the subject, 
and felt a little more deeply concerning it, readily find a 
place for women in his works ; and every such instance 
would make it more easy for women to find room in other 
establishments. 

Nor is it alone the employers of labor who can contribute 
to this result. The greater the respect and sympathy for 
working women, on the part of the general community, the 
easier will it be for the young and unprotected to find em^ 
ployment and maintain themselves in it. It is hard enough, 
at the best, for a woman to go about and solicit work, per- 
haps in strange places, certainly from strangers ; and to go 
and come, at early and at late hours, through quarters not 
free from disorderly elements. The more public interest 



260 POLITICAL ECONOMY, 

is aroused in working women, the more man's instinctive 
chivalry is appealed to on their behalf, the larger will be 
the opportunities of work open to them, the better their 
chances of obtaining the employment they need. This is 
what I mean by " the moral and intellectual elements of 
demand and supply/^ 



CHAPTER XXIV. 

THE ECONOMIC EFFECTS OF IMPERFECT COM- 
PETITION. 

234. The Assumption of Perfect Competition.— In para* 

graph 162 it was said that, in the chapters immediately 
following, a state of perfect competition would be assumed. 
We should, thus, seek to show what would be the distribu- 
tion of wealth, did each man, in his place in the industrial 
order, high or low, fully understand his economic interests, 
and unfalteringly pursue those interests, as thus discerned. 
We have now seen what I believe to be a complete and con- 
sistent theory of distribution, constructed upon this basis. 

The assumption that competition is always and every- 
where perfect, implies a great deal. How much it implies, 
let us, for a moment, stop to see. It implies, not only 
that a man has the general intelligence and the special in- 
formation to enable him to know, at any time, just what 
would be for his own true, permanent, economic advantage; 
but, also, that he will not be hindered by law or force or 
custom or public opinion, or by his own ignorance, in- 
dolence, fear or poverty, from seeking that object, steadily 
and firmly, until he reaches it. Should his interest require 
him to leave home, country and friends, he will not hesi- 
tate to do so. Should better opportunities offer themselves 
in other avocations, he will change his work, not less than 
his place, in order to secure those advantages. 

235. The United States as an Example. — It will be seen 
that perfect competition requires a great deal: more, in- 

261 



263 POLITICAL ECONOMY, 

deed, than was ever found among any people. But, "while 
nothing less than this will answer all the requirements of 
competition, something much less than this will yet answer 
those requirements so far as to secure a reasonably har- 
monious and beneficent distribution of wealth. 

Let us take the Free States of the American Union be* 
fore the War of Secession, as an illustration. Here a system 
of public education had bred a population in which the 
elements of knowledge were every man's possession. !N"ot 
only was the ability to read, write and cipher universal; 
but the genius of the people was singularly alert, active 
and inquisitive. What the American of those days did not 
know about his own business, he was sure to know about 
that of his neighbor. Political suffrage being universal, 
the whole population had become accustomed to public dis- 
cussion; and all had learned freely to communicate their 
own views, quickly to gather the opinions of others, and to 
take part, with confidence, in the decision of important 
questions. 

This people, moreover, had an instinctive aptitude for 
tools and a remarkable readiness for turning themselves to 
any work which offered. The American farmer was a good 
all-round mechanic; while the professional mechanics could, 
if necessary, change their trade, almost over-night. The 
habits of the population favored the freest movement. 
From the first settlement of the country, men had made 
less of going from the seaboard to the frontier than the 
men of some countries make of going from one village to 
the next. At the time of which we are speaking, not less 
than one-fourth of the population were living in States 
other than those in which they were born; another fourth, 
probably, in Counties other than those in which they were 
born. 

We have only to add that, in a new country, as yet only 



POLITICAL ECONOMY. 263 

half settled, the " margin of living'* had been so large as 
to admit of almost universal saving: no man was too poor 
to migrate, if he learned of superior advantages elsewhere, 
and of these he was almost certain to learn, through news- 
papers that went into nearly every house and cabin. 

Under conditions such as the foregoing, every economic 
advantage was quickly discerned and keenly pursued, and, 
so, the actual distribution of wealth came very near to the 
theoretical distribution which has been outlined in the pre- 
ceding chapters. 

236. An Illustration of Defective Competition. — In con- 
trast with the Americans of that period, let us take, as an 
illustration of how far competition might fail, among a 
people of the same race, the England of 1824. Here no 
system of public education had made the elements of 
knowledge free to all. The heavily taxed newspapers were 
for "gentlemen's reading," alone. The great body of the 
working classes were excluded from the suffrage; and had 
never been invited to the deliberations and decisions of 
public policy. Twenty years of war, combined with heavy 
duties laid on foreign breadstuffs, had forced cultivation, 
within the island, down to almost the poorest soils, and had, 
thus (par. 168), largely increased the share of the produce 
going to the landlord class; while enormous taxes, due to 
war and to war-debts, raised the price of the necessaries of 
life to an intolerable pitch. The "margin of living" had 
long been so small that savings were few; and the great 
majority of working men were too poor to migrate, even 
within the kingdom, had they been disposed. 

In fact, however, their ignorance was so great that good op- 
portunities, existing elsewhere, were most unlikely to come 
to their notice. It only needs to be added that, for hun- 
dreds of years, it had, by law, been a crime in England for 
laborers to combine together to raise the rate of wages, or 



264 POLITICAL BGONOMT. 

to shorten the day of labor, while masters had been, all th ' 
time, free to combine to lower the rate of wages and to 
lengthen the day of labor. The laborers, thus, unaccus- 
tomed to act in concert, were without mutual intelligence 
and without mutual support, if not jealous and suspicious 
of each other, as rivals for employment. The masters, 
strong in their position, their wealth and their knowledge, 
formed a resolute and compact force, whether for defence 
or for offence. 

237. The Consequences of Defective Competition. — Such 
was industrial England, in 1824. The lamentable defects 
of so extensive a failure of competition could only be ade- 
quately depicted in a volume. Wages had gone down and 
down, and with them had gone, to an inconceivable depth, 
the moral character and even the physical vigor of the 
population. The laborers in the fields obtained a meaner 
and scantier subsistence than the paupers in the alms- 
houses.* Pauperism was, indeed, the best refuge for the 
able-bodied. Even when opportunities for employment 
existed in more favored localities, the peasants were too ig- 
norant to learn of it, and too poor to migrate, had the in- 
telligence been brought to them.f Within the districts 
where labor was in excess, wages were whatever the masters 
chose to offer. The power to resist had utterly departed 
from the laborer. With every successive reduction of wages, 
physical vigor declined; self-respect and social ambition re- 
ceived heavier and still heavier blows ; disease came in with 

* The Poor Law Commissioners of 1833 reported that, while able- 
bodied paupers received 151 oz. of food per week, the agricultural 
laborer consumed but 122 oz. 

f Even at a later period, a well-known statistician says: *' A labor- 
er's wages in Dorset or Devon are barely half the sum given for 
similar services in the North of England. " And this state of things 
continued for a generation, without a movement of labor sufficient to 
correct the inequality. * 



POLITICAL EGONOMY, 206 

deadlier power; intemperance grew witli misery; shameful 
vice * became ever more obtrusive. 

It is no hostile picture which I have drawn. More griev- 
ous statements could be borne out by hundreds of volumes 
written by Englishmen: many of them, official "blue 
books." What has been described is simply the natural 
effects of one-sided competition. On their part, the mas- 
ters, actuated by no ill-feeling toward their laborers, but ear- 
nestly seeking their own interests, and often sorely crowded 
by each other, kept pushing, pushing, pushing against their 
laborers, who, on their part, were utterly unable to resist 
the fatal pressure. Had the men been alert, active, aggres- 
sive, with equal rights of combination, thoroughly "posted" 
as to the conditions of industry, confident in themselves 
and trusting each other, the harder the masters pressed 
against them, the better for all. What was wanted was, 
not that the masters should be mild and yielding, but that 
the workmen, too, should be resolute and firm. 

238. A Loss which No Man Gains. — It is not, even, for 
the interest of the employing class that their workmen 
should easily give way, under pressure from them. If the 
employers, themselves under a painful strain from competi- 
tion (and it is always to be borne in mind that many em- 
ployers can, at the best, only hope to make both ends meet), 
crowd hard upon their laborers, in the matter of work and 
wages, and the latter give way, immediate relief is, indeed, 
afforded, but that relief is only temporary, while, in the 
end, the effects are destructive. 

Wages having, under pressure, fallen, prices follow them 
down to the point where the least competent employers can, 
again, only just get back their outlay in the sale of their 

* "In many districts," says Miss Martineau, in her History of the 
'Peace, " it was scarcely possible to meet a young woman who was 
respectable.*' 



266 POLITICAL ECONOMY. 

goods. This having been brought about, these employers 
are no better off than before. But how is it with the 
laborers concerned ? Upon them the loss of wages, which 
means scantier subsistence and meaner conditions, operates 
to reduce at once their physical strength and their social 
and industrial ambition (pars. 37-41 and 43-45); and they 
are soon worth their lower wages no more than they were 
formerly worth their higher wages. Here, then, is a loss 
which no man gains. The employer is no better-off because 
the laborer has been driven to lower wages and meaner con- 
ditions, and deprived of much of his physical vigor and self- 
respect. The laborer is infinitely worse-offo The State, 
too, has sustained a painful and irreparable loss, in the 
character of its citizenship. 

239. Self-Assertion on the Part of the Laboring Class is 
Essential to General Well-Being. — Nothing, economically 
speaking, can save industrial society from progressive deg- 
radation, except the spirit and the power in the working 
classes to resist being crowded- down. The crowding must 
take place. It is in the nature of trade and production. 
If the workmen are active, alert, aggressive ; strong in 
their self-respect and confident of their cause, that pres- 
sure will do them no permanent harm. 

Suppose you strike with a hammer into a bin of barley. 
You bury the hammer up to your wrist in the barley : yet 
you do not crush a single grain. Why not ? Because the 
whole mass was free to move ; and no single grain had to 
receive any considerable part of the blow. Lay one of 
those grains upon a plank, and strike a blow a tenth part 
as hard : you will smash it into a paste. Why ? Because 
the grain was not free to move ; and consequently had to 
suffer the blow without escape. Let the stoutest ship 
which ever rode-out a hundred gales, be lodged in the 
sands, or caught between rocks ; and the waves which 



POLITICAL ECONOMY. 267 

smite her, as she is held fast in position, will, in a few 
days or hours, break her up, and scatter mast and plank, 
crew and cargo, in wreck along the shore. 

A laboring population which is alive to its own interests 
and prompt and strong in maintaining them, cannot be 
crushed by any sudden calamity, or even by unremitting 
pressure from the master class. If employment fails at 
one point, hundreds or thousands will go to the places 
where business is flourishing. If industry is prostrate all 
over the land, such a population will be found to have re- 
serves, in savings banks or in real estate, which will carry 
them through to better times. If the conditions of indus- 
try grow harder and harder, from year to year, such a pop- 
ulation will withhold their increase, and thus gradually re- 
duce the supply of labor. 

But a population such as we have described, in the Eng- 
land of 1824, only breed the faster, the more miserable they 
become; only cling the closer to their place, the harder their 
lot. Upon such a population industrial blows are sure to 
fall, thick and fast ; and each blow does a damage never to 
be repaired. There is almost no limit to the industrial and 
social degradation which may come in this way. 

240. Lowering the Industrial Character of the Employ- 
ing Class.— I have said that it was of no permanent advan- 
tage to the employer to reduce wages by economic pressure; 
while it was of great and lasting injury to the laboring 
class. There is another effect of imperfect competition, as 
between laborer and employer, which deserves to be noted. 
The inevitable result is to bring into business a poorer class 
of employers; and thus to reduce the margin of produc- 
tion, in this respect ; and thus (par. 195) to still further 
injure the laboring class and the whole community. 
. If the laboring class are active, alert and aggressive in 
the pursuit of their interests, the employing class will be 



268 POLITICAL ECONOMY. 

continually sifted ; its weakest members will be thrown- 
out ; and the whole class will undergo an unceasing educa- 
tion, in all that relates to their business, li, on the other 
hand, the laborers are ignorant, stupid, inert, great num- 
bers of incompetent men will get into the control of in- 
dustry, and sustain themselves there, at the expense of the 
community, and of the laboring class in particular. The 
poorer the man, the poorer the master. The unprofitable- 
ness of slave labor was not due more to the inefficiency of 
the slave than to the shiftlessness of the management. 
Men will become the employers of poor labor who would 
never become the employers of good labor, and who ought 
not to be the employers of any kind of labor. 

241. The Repeal of the Corn Laws. — An excellent illus- 
tration of the effects of increased competition, in improv- 
ing the character of the employing class, is to be found in 
the history of English agriculture, before and after the re- 
peal of the Corn Laws, in 1846. While Parliament was 
discussing that measure, there were numberless farmers 
who could appear before committees, or write letters to 
the newspapers, showing that they were only just able to 
make both ends meet, at existing prices for produce. If, 
then, prices were to be lowered, by allowing foreign bread- 
stuffs to come in free, it was as clear as the nose on your 
face that English agriculture would be ruined. 

As to the facts, there could be no question. These 
farmers were perfectly honest in their statements. Never- 
theless, Parliament repealed the Corn Laws. Was Eng- 
lish agriculture ruined ? Far from it. Many of the old 
ignorant, hard-drinking, horse-racing, fox-hunting farmers 
were, indeed, driven out; but their places were more than 
taken by a new race, who studied their business, worked 
hard, bought superior machinery; introduced improved 
breeds of cattle ; frequented the agricultural fairs, not for 



POLITICAL ECONOMY, 269 

a '^good time/^ but to get hints for the management of 
their farms. As a result, English agriculture gained more 
during the twenty-five years which followed 1850, than 
during the seventy-five years which preceded it. 

242. Other Causes which Help to Swell the Proportion of 
Incompetent Employers. — There are many other causes 
which help swell the proportion of incompetent employers. 
Shilly-shally laws relating to insolvency do this ; bad 
money does this, in a high degree ; truck (that is the pay- 
ment of workmen in goods, at the employer's store, instead 
of in money) does this ; protection, also, in my opinion, 
does this. Each of these causes enables employers to es- 
cape the consequences of incompetency, and to hang miser- 
ably on to business, where they are an obstruction and a 
nuisance. 

243. The Influence of Defective Competition upon Rents. 
— We have seen that the normal rent of any piece of land 
is determined by the excess of its productiveness over that 
of the least fertile lands contributing to the supply of the 
same market, at the same time. In theory, rents cannot 
exceed the amounts thus determined. Should the landlord 
attempt to exact a higher rate, tenants will move to the 
no-rent land (whether found at home or in some distant 
country) ; and thus protect themselves against such exac- 
tions. Under perfect competition, rent can only carry 
away the proper Surplus, as we have defined it. But how 
if competition be imperfect ? 

244. Rents in Ireland. — We have illustrated the effects 
of imperfect competition upon wages, by a reference to the 
condition of the working classes in England, prior to 1825. 
Let us illustrate the effects of imperfect competition upon 
rents by a brief reference to the condition of the tenant 
class in Ireland, prior to 1850. Unfortunate as were the 
relations between laborer and employer in England, at the 



270 POLITICAL EGONOMY. 

time spoken of, the relations between landlord and tenant 
in Ireland were even worse. 

In the first place, the Irish peasant was peculiarly ill 
fitted for a close competition with his landlord. He was, 
by nature, sanguine, impulsive, careless in expenditure, 
perhaps it is not too much to say, improvident. He was 
not much given to looking far ahead; while, in the present, 
he was sociable and generous to a fault. Had, however, 
the landlord class been of his own race and bound to him 
by common sympathies, the peculiarities of the Irish tem- 
perament might not have resulted in serious harm. Most 
unfortunately, the landlords of Ireland, at this time, were 
largely of a different race and a different religion. The 
two classes were not only, thus, alien to each other ; they 
had been made hostile by mutual injuries. 

Even this was not the worst of the case. A large part of 
the Irish landowners were ^*^ absentees," expending in 
foreign lands the rents which were wrung from the peas- 
antry by middle-men, or agents resident on the soil. 
Generally speaking, these middle-men and agents were a 
peculiarly hard sort of men. They had been selected for 
their skill in searching-out every possible means of exac- 
tion, and for their unflinching resolution in exacting the 
last penny, even by '^ distraint" or eviction. The hatred 
with which they were regarded by the peasantry only made 
them the harder. The dangers to which they were exposed, 
in their cruel work, destroyed every feeling of compassion 
in their hearts. 

245. Over-Population. — We have said that the Irish peas- 
antry were peculiarly ill qualified for such a competition 
by their national characteristics. But that which put 
them at the greatest disadvantage was the recklessness with 
which they increased their numbers. The more miserable 
they were, the earlier they married, the more freely they 



POLITICAL ECONOMY. 271 

brought forth children. By this it came about that popu- 
lation soon came to be greatly in excess ; and the wretched 
peasantry were driven to compete with each other, with 
ever increasing eagerness, for the poor privilege of cultivat- 
ing each small parcel of ground. 

It was through such a state of unequal competition, that 
the Irish peasantry were reduced to that condition of uni- 
versal and hopeless poverty which the great famine of 
1846-7 brought so vividly to public attention, filling the 
world with horror. Eents had been increased, step by 
step, until, in a large proportion of instances, the sums 
which the peasants had promised to pay were, incredible 
as it may seem, actually in excess of the whole produce of 
the soil ! Of course, such rents could not be paid. The 
peasant had to live ; and consequently the landlord had 
to allow him something on which to live. But his food 
was of the most scanty and miserable character ; rags were 
his clothing ; his bed, a heap of straw ; his hovel, a pen 
only fit for swine. Even so, the peasant was always in 
arrears to his landlord, which fact gave the agent still 
greater power over him, and made it still harder for him 
to improve his lot. 



CHAPTER XXV. 

WHAT MAY BE DONE TO HELP THE WORKING 

CLASSES. 

246. What was Done in England. — If such are the evil 
consequences of an economic pressure to which the labor- 
ing classes are unable adequately to respond, the question 
arises^ what^ if anything, can be done, in such a state, to 
help them ? We shall, perhaps, best answer this question 
by telling, very briefly, what actually was done in England. 

247. Trade-Unions. — In 1824-5, Parliament, under the 
enlightened leadership of William Huskisson, repealed the 
laws which had forbidden workmen to combine to raise 
wages or shorten the day of labor, or alter the terms or con- 
ditions of employment. Of this the working classes at once 
took advantage, to form Trade-Unions, in which men of the 
same trade joined together to promote their common in- 
terest. These Unions collected money from their mem- 
bers, through weekly or monthly fees ; kept up correspond- 
ence with other unions, in other places ; assisted the sick 
and disabled of their own number ; and, when they deemed 
the occasion propitious, made demands upon the employing 
class, which demands they stood ready to enforce, if neces- 
sary, by Strikes, that is, by concerted refusal to work at the 
old terms. 

In the miserable condition to which they had been re- 
duced by the causes indicated in paragraph 236, ignorant, 
poor, unfamiliar with affairs, the laborers, in their new 
efforts, for awhile made many and great mistakes. Noisy 

272 



POLITICAL EGONOMY, 273 

and turbulent, or sly and plausible, men got the leadership, 
as is always the case at first. These misled the well-meaiiing 
and excited the bad. Demands were made upon employ- 
ers which could not properly be granted; and those de- 
mands it was sometimes sought to enforce, not only by 
strikes, which were lawful and right, but also by violence, 
which was unlawful and wrong. In many of the contests 
which ensued, the laborers were beaten; and, after suffer- 
ing untold losses, were obliged to go back to work, at the 
old wages and for the old hours. Still they persisted, with 
wonderful courage and admirable fidelity to each other. 
Beaten again and again, they again and again returned to 
the attack. Even when they were beaten outright and 
completely, the masters were yet learning to fear and to 
respect them, as they had never done in the times when it 
was the theory, alike of the law, and of the master, and of 
the economist, that laborers had nothing whatever to do 
with fixing their own wages, but should take whatever was 
offered them, in silence and thankfulness. 

248. Education of the Working Classes. — Meanwhile, the 
working classes were learning both their own power and 
the limitations of that power ; were coming to have confi- 
dence in themselves and in each other ; were beginning to 
see the difference between noisy demagogues and true 
leaders. Better men were coming to the front among them. 
The times taken for making demands were more wisely 
chosen. The demands themselves were more reasonable. 
The tone and manner in which these demands were made 
were more conciliatory and respectful. More and more, 
demands thus made were conceded without a contest, or 
won after a hard fight. But, whether the working men 
won or lost the particular thing they were struggling for, 
they were, all the while, gaining knowledge of themselves 
and commanding the respect of the employing class, • 



274 POLITICAL ECONOMY, 

249. Factory-Acts Passed. — While this series of indus- 
trial insurrections was going on, Parliament, moved by 
many enlightened and philanthropic men, was doing what 
it could to raise the condition of the people. Factory- Acts, 
so-called, were passed, which limited the hours of labor to 
what was consistent with health and strength ; which re- 
stricted the employment of young children ; which forbade 
women to work underground in mines, or in oth^r avoca- 
tions unsuited to their sex^ which required dangerous 
machinery to be fenced or guarded, so as to protect life 
and limb ; which provided for the sanitary regulation and 
inspection of factory buildings. 

. 260. Other Remedial Legislation. — Acts were also passed 
which established banks to protect the first small savings 
of the very poor ; the suffrage was extended; taxes which 
pressed with peculiar hardship on the masses were repealed; 
the stamp duties were removed from the newspapers. 
Measure after measure, conceived in the true spirit of 
/statesmanship, to help the people to help themselves, 
became laws, in quick succession. Aided, thus, by judi- 
cious legislation, but striving ever more and more to aid 
themselves, the British laboring class climbed upward, out 
of " the horrible pit and miry clay" in which they had 
been left by the abuse and neglect of centuries ; and began 
to take their true place in society. 

There was still a great deal of drunkenness, riot and coarse 
vice, a great deal of wastefulness and foolish expenditure 
of means hardly earned. But, in spite of all, the long his- 
tory of mankind has no other chapter which is so full of 
promise, as that which tells of the rise of the working 
classes of England from 1 825 to the present time. The 
British laborer of to-day differs as widely from the British 
laborer of the early time, as if he were, in the phrase of 
Edmund Burke, " a different species of animal." 



POLITICAL i^GONOMY. 275 

251. Factory-Acts Considered.— The present Duke of 
Argyle, in his Eeign of Law, declares that the necessity 
and economic benefit of factory legislation, like that of 
England to which we have referred, constitutes one of the 
greatest discoveries of the nineteenth century, in the sci- 
ence of government. Certainly, although these acts were 
at first opposed by many statesmen and by most econ- 
omists, they have been, in the result, approved by experi- 
ence, and have been copied, with more or less of change, 
by nearly all civilized governments. It has now passed be- 
yond question, that it is desirable that mill-owners and 
large employers of labor, should be, by law, restrained from 
doing (whether under the impulse of avarice, or under 
painful pressure from competition) certain things which 
are clearly prejudicial to their operatives, and which can, 
in the long run, do no good to themselves. Such acts, if 
wisely conceived and sensibly administered, are a protection 
not less to the employer than to the laborer. They do no 
harm to any, but only good to all. The master class them- 
selves ought to be glad that it is forever put out of their 
power to do the things * which are prohibited by these 
measures. Within the limits where the law still leaves 
them free to act, the ablest of employers will find abun- 
dant scope for the exercise of all his energy, enterprise and 

skill. 

To the laboring class, on the other hand, seeking their 

* The beginning of the present century found children of five, 
and even of three, years of age, in England, working in factories 
and brickyards; found women working underground in mines, har- 
nessed with mules to carts, drawing heavy loads; found the hours 
of labor whatever the avarice of individual mill-owners might exact, 
were it thirteen, or fourteen or fifteen ; found no guards about ma- 
chinery, to protect life and limb; found the air of the factories fouler 
than language could describe, even could human ears endure to hear 
the story. 



StO POLinCAL ECONOMY. 

own interests through mucli perplexity and against many 
obstacles, factory legislation gives a certain definite, solid, 
unshakable ground, on which they can securely build, in 
their further efforts. Below this, the force of competition, 
the effects of shocks and catastrophes cannot ccyne. This 
much, at least, is secure. 

252. How about Freedom of Contract ? — The objection 
made to factory legislation has been that it interferes with 
the freedom of contract. But what is freedom,* so far as 
practical men are concerned with it ? Is it an empty right 
to do something which you cannot possibly do ? or is it a 
real power to do that one, out of many things, which you 
shall choose ? If one course gives a man a legal right to 
do anything, but results in his being so helpless, and brings 
him into such miserable straits, that he can, in fact, do but 
one thing, and that, a thing which is most distressing; 
while another course, though it keeps a man from going 
hither and thither, actually conducts him to a position 
where he has a real choice, among many and good things — 
which course affords the larger liberty ? 

In the case of a poor and ignorant population, the ab- 
sence of factory-acts, while it nominally leaves the opera- 
tive free to go anywhere and do whatever he likes, really 
results in his staying where he is, and doing what he par- 
ticularly dislikes. He becomes the slave of the mill, bound 
fast to the great wheel which turns and turns below. 
Theoretically, he will not work in any factory in which the 
sanitary arrangements do not suit the most fastidious tastes; 
in which machinery is not fenced, to prevent murder and 

* "The modern English citizen, who lives under the burden of 
the revised edition of the Statutes, not to speak of innumerable muni- 
cipal, railroad, sanitary and other by-laws, is, after all, an infinitely 
FREER, as well as nobler, creature than the savage who is always 
under the despotism of physical want." — Prof. Jevons. 



POLITICAL ECONOMY. ^11 

mutilation ; and in which the hours are not agreeably 
short. Theoretically, too, he will place himself with refer- 
ence to the comfort of his family, and to the education of 
his children for a career better than his own. 

Practically, he will have no choice but to work as long as 
the great wheel turns, be that twelye hours or fourteen, or 
else go out to starve ; he will every week see some of his 
companions bruised and mangled by unguarded machinery; 
he will breathe air which is deeply laden with poisonous 
particles or gases. Practically, too, he will, under the pres- 
sure of dire necessity, put his children into the mill just as 
soon as he can get them there ; and in the mill they will 
stay until they die. This is what will come to most labor- 
ing populations, without factory-acts. Are such popula- 
tions really freer than populations which are protected 
by laws like those which we have described ? 

A crutch acts only by restraint; and, to a perfectly 
sound man, would be only a hindrance and a nuisance. 
But is a cripple without a crutch a freer man than a 
cripple with a crutch ? In his case, does not the crutch 
correspond to an existing infirmity, in such a way that he 
has a much greater liberty and power of action and of 
movement, through its help : that is, through the restraint 
it exercises? 

253. Trade-Unions Considered. — In the elevation of a 
laboring population, long abused and deeply abased, trade- 
unions may perform a part of much importance, although 
always at the risk of doing harm rather than good. That 
risk, however, men have frequently to take in the pursuit 
of a desirable social object ; and the history of industry 
shows that, on the whole, the good has predominated over 
the evil, in the work of trade-unions. 

Trade-unions, as means for advancing the condition of 
the working classes, are subject to drawbacks which do not 



2lf8 POLITICAL WomUY, 

attend factory-acts. There is no reason why the effects of 
the latter should not be altogether for good. The things 
which are to be prohibited are things which, in any broad 
view, are seen to be injurious to all. The things which are 
required are things which really benefit both parties to the 
contract for labor. Within the lines drawn by factory leg- 
islation, the laborer and the employer are left free to seek 
their several interests, and to exercise each his own powers 
in his own way. But in the case of trade-unions, there is 
a real and a great danger that mischief will be done. 
There is a strong and a constant liability to begin courses 
which can only result in injury to the general community, 
and to both parties to the contract for labor : most of all, 
to the laborer himself. The trade-union is not only an 
edged but a two-edged tool, which is highly dangerous to 
those who wield it carelessly or wantonly. 

254. Abuse of Trade-Unions. — Trade-unions, viewed 
merely as Friendly Societies, insuring their members 
against the effects of sickness or accident, promoting good 
fellowship and exerting a certain social influence through- 
out the craft, are, of course, beyond objection. But trade- 
unions, as bodies seeking to legislate concerning the ways 
in which industry shall be carried on, and to enforce that 
legislation by industrial war, are subject to many evil lia- 
bilities. 

It would greatly surprise one who had not studied the 
subject to read the foolish and mischievous rules which 
many trade-unions have established for the government of 
their own members, and have attempted to enforce upon 
employers. It would be difficult to say, in regard to some 
of these codes, whether gross ignorance as to the primary 
conditions of production, or a spirit which delighted in 
humiliating and harassing employers, had played the 
greater part. In not a few instances such regulations have 



POLinOAL ECONOMT. 029 

led to bitter contests, in which the interests of both parties 
have been sacrificed. 

I prefer to say the worst that is to be said regarding 
trade- inions, at the beginning, rather than at the end. 
In addition to extreme instances of folly or mischief-mak- 
hig, there is a great deal in the regulations which trade- 
unions, in America, in England and elsewhere, have under- 
taken to enforce, which has borne with unnecessary 
severity upon the employing class ; has been unfair to the 
outside mass of labor, waiting to be employed, and has 
been, perhaps in no sudden and violent way, prejudicial to 
industry and to the well-being of the community. 

255. Education through Experience. — ^Whenever a body 
of men have suddenly come into the possession of power, 
they are apt to deem that power irresistible, and to pre- 
sume greatly upon it. They are likely to fall under the 
influence of the less moderate and fair-minded of their 
own number. Only experience in affairs, with both good 
and evil fortune, can teach men to use power without 
abusing it. That experience is expensive; but it is the 
price of industrial, as of political, freedom. 

In England, where trade-unions, in their modern form, 
first arose, there has been a steady progress towards mod- 
eration, sound judgment and fairness, in dealing with 
questions arising between laborer and employer. The char- 
acter of the men chosen as leaders has continually improved ; 
their constituencies have grown in knowledge, in prudence 
and in the respect paid to good advice. Strikes have 
diminished from decade to decade; the proportion of dis- 
putes adjusted by arbitration has increased. 

Whether there is, or has ever been, any real industrial 
occasion for trade-unions in the United States, is fairly a 
matter of question. There certainly was none before the 
War of Secession. If such an occasion has since arisen; 



280 POLITICAL ECOHTOMT 

if the welfare of the laboring classes now requires the ex- 
istence of such associations, this is wholly on account of 
the vast numbers of persons, not born upon our soil, not 
bred under our laws, not educated in our schools, whom 
the great prosperity of the country and the force of our 
tariff-laws have drawn across the ocean, to make their home 
here. 

256. Strikes Considered. — The possible utility of strikes 
has long been the subject of dispute. There was a time 
when most educated men held that strikes were only and 
always of evil. A somewhat different view has recently 
come to prevail. 

Strikes are the insurrections of labor. Like insurrec- 
tions in the political body, they are justifiable on the part 
of men whose rights or whose interests are threatened with 
the gravest injury. In such a case, no one should, merely 
for the sake of peace, wish to have any body of men too 
weak or too cowardly to resist. For myself, I believe that 
the fierce series of industrial revolts which, in England, 
followed the repeal of the Combinations Acts were absolute- 
ly necessary in order to break up the power of fear, of tra- 
dition and of poverty, by which the minds of the working 
classes of the kingdom had been so long held in bondage ; 
absolutely necessary, in order to create among the laborers 
the self-confidence, the social ambition and the sense of 
mutual interest, which were needed for their development 
into industrial and political manhood; absolutely neces- 
sary, in order to teach the master class to respect their 
workmen; absolutely necessary, in order to secure a fair 
competition, equal on the two sides. 

But, while strikes are, thus, under certain circumstances, 
useful, it is only in the earlier stages of industrial progress. 
Strikes have no positive virtue. They do not create wealth, 
but only destroy it or impede its production. As soon as 



POLITICAL WOJXrOMT. 281 

a body of workmen have fairly ^'pulled themselves to- 
gether;" have taken the first steps in their own advance- 
ment ; have got a little ahead in the world, they ought to 
find better means than strikes, for securing their further 
progress. They can generally, by active, energetic com- 
petition, take a shorter and a surer way to economic pros- 
perity, than through industrial warfare. 

257. Strikes, the Last Resort. — Yet, behind all friendly 
negotiations, all arbitrations and compromises, the strike 
will always remain as the last resort, to give seriousness and 
earnestness to the efforts of both parties to reach satisfac- 
tory results, by mutual agreement. Perhaps the state of 
things which at the present time exists in England repre- 
sents, as fairly as could be expected, the true use of this 
agency. Strikes now seldom take place in that country. 
Both parties have reason to dread them and to shrink from 
them. Long and bitter experience has made each party 
painfully anxious to avoid that resort. In consequence, 
the claims of laborers for advance of wages in good times, 
the propositions of masters for reductions of wages made 
necessary by bad times, are considered with an earnest de- 
sire to find a solution satisfactory to both parties. 

In such a state of the public mind, lightness, arrogance 
and wantonness, disappear from the debate. The working 
men are careful not to put forward demands which they can- 
not make good, for that would injure their cause. Masters 
are anxious to concede whatever can be fairly shown, to im- 
partial judges, to be reasonable and right. 

Such has been the improvement of the laborer's condi- 
tion, through the causes already recited, that the two par- 
ties are now not unevenly matched, in point of power. 
Either party is strong enough to win the fight, if its cause 
commands the sympathy, the respect, and, if needed, the 



282 POLITICAL EGONOMT. 

pecuniary support of the outside community.* On the 
other hand, neither party can expect to win if it is mani^ 
f estly seeking to crowd the other " into a corner," or car- 
ries on the conflict by unfair means. This is what should 
be. Such an equilibrium between the two parties in inter- 
est, with the general sense of all disinterested people and 
all lovers of fair-play coming-in to turn the scale, is, per- 
haps, the best result we can hope to attain, while the or- 
ganization of industry remains substantially as at present. 

* The effect of this has been shown, to a most remarkable degree, 
in the great London strike of the present year — 1889 — when nearly 
all the men of high position, in society, in business, and in the 
church, gave open approval and support to the laborers, as against 
the dock-companies ; and when large contributions of money flowed 
in from &11 parts of the kingdom, and even from foreign countries. 



CHAPTER XXVI. 

THE "PAUPER-LABOR" ARGUMENT FOR 
** PROTECTION." 

258. Are Low Wages Infectious ? — It was said, in para- 
graph 156, that, not until we had passed through the whole 
theory of the distribution of wealth, should we be in a 
position to take up, to advantage, the argument for Pro- 
tection which is known as the Pauper-Labor argument. 
We may now briefly consider this subject. 

The plea made, from this point of view, in favor of the 
policy of protection, is that populations among which 
wages are high and a respectable standard of living is main- 
tained, cannot freely import the products of countries 
where wages are low and the laboring classes are deeply 
degraded, without, in time, losing their own economic 
position of vantage, and becoming reduced to the same low 
level as the least fortunate peoples with whom they trade. 

259. Not between Non-Competing Countries. — It is, in 
the first place, to be noted that any such lamentable result 
need only be apprehended in case the more fortunate and 
the less fortunate peoples are engaged in producing the 
same kind of goods, or, else, goods which can largely be sub- 
stituted for each other in use. 

For example, the United States produceSno tea. It can- 
not, therefore, matter to us, except on grounds of hu- 
manity, how miserably the peoples of the tea-producing 
eountries live. If wages in those countries are low, in 
proportion to the work done, the people of the United 



284 POLITICAL ECONOMY, 

States only get their tea the cheaper thereby. In the 
same way, the tropical fruits which come hither will only 
cost us less, the more miserably those who, in distant 
lands, produce them, are compensated for their labor. 

The evil effects which are anticipated can only occur 
when the two peoples concerned are competing with each 
other in selling the same kind of goods, or goods so nearly 
alike in their uses that one kind can be substituted for 
another. Manifestly this is so; and it is to this state of 
things, only, that the Pauper-Labor argument applies. 

260. How about Competing Countries? — But, if two 
peoples are thus competing, is there danger that the low 
wages and the miserable standard of living in one will 
tend, through the course of trade, to infect the other ? On 
this point two things are to be said. 

First; we must recur to the principle which governs 
Normal Price. In Chapter X, we saw that the normal 
price of any kind of goods is fixed, not by the cost of pro- 
ducing this or that portion of the supply, but solely by the 
cost of producing the last (considerable) portion of the 
supply which is produced ^^at the greatest disadvantage." 

If, then, a foreign nation produces a portion of the sup- 
ply at greater advantage (let us, for argument's sake, say, 
through employers being able to hire labor at lower wages), 
this will not necessarily affect the price of those goods. 
So long as the full supply of that kind of goods requires 
that any considerable portion should be produced at a com- 
parative disadvantage (due, let us say, to the payment of 
higher wages) in other countries, the price will be deter- 
mined by the cost of production in these countries, and not 
in the former country.* It would not, then, be until the 

*Here we have a suflScient reply to the objection which is made 
to allowing " convict labor," in prisons and reformatories, to be em- 
ployed in making goods for the market. It is said that, as this labo? 



POLITICAL ECONOMY, 285 

former country could so increase its production as to bring 
forward the whole supply required, that prices would fall 
to a point corresponding to the low wages there paid. 

Secondly. But do low wages necessarily, or generally, 
constitute an advantage in production, which would allow 
the countries where such wages prevail to undersell those 
in which high wages prevail ? On this point we refer to 
considerations pointed out in Chapter VI. 

261. High Wages: Low Cost of Production. — There is 
apt to be a great deal of confusion in the public mind re- 
garding the difference between high or low wages, and a 
high or low cost of production. The cost of production 
may be low when wages are high, because the laborers may 
be so energetic and efficient, so skilful and so careful, that 
the employer may get back even those high wages in the 
price of his product. 

The cost of production may be high when wages are low, 
because the labor purchased thereby may be so unintelli- 
gent, shiftless and wasteful, so lacking in energy and in- 
spiration, that the employer may find it difficult, perhaps 
impossible, to get back those wages, mean as they are, in 
the price of the product. Not only may this be so; but it 
often, and, indeed, generally, is so. High wages are com- 
monly, habitually, found associated with a low cost of pro- 
duction. Low wages are, quite as generally, found asso- 
ciated with a high cost of production. 

262. Practical Illustrations. — The English cotton-spinner 
receives as many shillings, a week, as the East India cotton- 
costs little (the State being obliged, for the public safety, to subsist 
the convicts, whether employed or not), the wages of honest, free 
labor will be reduced by such competition. But the goods produced 
by convict labor, in general, constitute a small, often an incon- 
siderably small, part of the supply. Their cost of production, at a 
relative advantage (through a low cost for labor), does not, therefore, 
fix the price. 



286 POUTIGAL EC0K0M7. 

spinner receives pence; yet English cottons undersell Indian 
cottons in Indian markets. The German iron-maker re- 
ceives two or three times as much wages as the Russian; 
yet German iron has to be kept out of Eussia by heavy 
duties. On the other hand, the English iron-maker re- 
ceives two or three times the wages of the German; yet 
Germany feels under a terrible necessity to keep out the 
iron of England, 

Illustrations might be multiplied; but one more will suf- 
fice. In a report made by Mr, Blaine, as Secretary of State, 
June 25, 1881, occurs the following statement regarding 
the cotton manufacture of England and the United States: 

^' It thus appears that each American operative works-up 
as much raw material as two British operatives ; turns out 
nearly 11.50 worth of manufactures to the British opera- 
tive's II worth; and, even in piece-goods, where the superior 
quality and weight of the American goods are so marked, 
the American operative turns out 2.75 yards, to 2.50 yards 
by the British operative.'* 

263. The Reason for the Rule. — ^The reason for this 
association of high wages with low cost of production is 
perfectly plain. As shown in Chapter VI, the laborer's 
efficiency is, in great part, the immediate product of his 
wages. So far as the laborer's efficiency is the immediate 
product of his wages, that efficiency should increase at least 
proportionally with his wages. In fact, it will, within wide 
limits, increase more than proportionally, very much more. 
An underfed and ill-clothed laborer (and most of the 
laborers of the world are underfed and ill-clothed) does not 
develop labor-power in proportion to the meagre subsist- 
ence allowed him. A laborer receiving 150 ounces of solid 
food a week, can perform not merely one-half more of 
effective work than a laborer receiving 100 ounces: he 
can probably do twice as much. So far as food, alone, is 



POLITICAL ECONOMY. 287 

concerned, it is unquestionably true that, until the economic 
maximum has been reached (and that maximum is very 
unlikely to be reached), productive power is developed at 
a continually increasing ratio. So far, therefore, as wages 
go to food, there is the best possible reason why high wages 
should be associated with a low cost of production. 

How is it with the other elements of personal consump- 
tion, to which wages are applied? That the same principle 
operates in respect to that portion of wages which is ap- 
plied to clothing and to securing comfortable and whole- 
some lodging is, I believe, abundantly established. But 
how about those parts of wages which go to what we may 
call the decencies and luxuries of life ? Do these constitute 
a force, of which efficiency in labor is the direct and 
necessary product ? 

Generally speaking, it has been shown, on the widest scale, 
that the self-respect, the domestic and social ambition, the 
hopefulness and cheerfulness, which arise out of such en- 
joyments and the further prospect of such enjoyments, on 
the part of the laboring classes, generate an industrial force 
(pars. 43-5) which as fully repays its cost (that is, the 
price of such enjoyments) as does any equal expenditure 
upon the necessaries of life. I should regard any person 
as very unfortunate in his opportunities for the observation 
of human life, or still more unfortunate in the spirit he 
brought to that observation, who should deny that the 
foregoing statements are largely, and even generally, true. 

264. Does this Rule hold Universally ? — But is this prin- 
ciple, that industrial efficiency (within reasonable limits, of 
course) increases at least proportionally, and tends to in- 
crease more than proportionally, to increase of wages, 
temperately and virtuously applied, a principle of universal 
applicability ? Is it equally true, when the increase is large 
and sudden, coming to men who have previously lived in 



288 POLITIGAL ECONOMY, 

squalor and wlio have comparatively little susceptibility to 
moral and intellectual motives, as when the increase of 
wages is moderate and gradual, coming to men who have 
heretofore been accustomed to decent and comfortable 
habits of living ? 

Is it equally true, when the increase of wages occurs 
within a branch of industry where the work is such as gives 
little Opportunity for the exercise of intelligence, of care in 
the use of tools and machines, of ingenuity and prudence 
in the prevention of waste, and where the rate of the 
laborer's motions is practically determined by the movements 
of machinery, as it would be, were the increase of wages to 
occur within a branch of industry offering large possibili- 
ties to the physical, moral and intellectual activity of the 
laborer ? 

266. To Come Down to Particular Cases. — Is it equally 
true that an increase of wages would produce a correspond- 
ing increase of working power, in the case of Hungarians, 
or of Poles, or of South Italians, as in the case of native 
Americans or of Scotchmen or of Saxons ? Is it equally 
true in case of men employed in a cotton mill, as in the 
case of men working in a shoe shop, or a watch factory, or 
a machine shop ? If this be not so, I am not sure that the 
answer which the free trader has habitually made to the 
protectionist, at this point, is quite as conclusive as people 
of my own general way of thinking have been accustomed 
to regard it. 

As to the universality of the principle, that high wages 
mean a low cost of production, I confess I am not confident. 
That among a generous and well-bred people, socially ambi- 
tious, self-respectful and intelligent, successive advances of 
wages, by moderate degrees, would, up to a certain, high, 
point, generate increments of productive force propor- 



POLITICAL ECONOMY. 289 

tional, or even more than proportional, I entertain no 
doubt whatsoever. 

266. Conclusion.— If the proposition of the free trader, 
that industrial efficiency increases correspondingly to in- 
crease of wages, is universally true, then the protectionist 
has no ground to stand upon. No case exists such as he 
assumes. If American wages, for example, are exception- 
ally high, then it must be true that the foreign manufac- 
turer pays as much, and probably more, for the same 

AMOUKT OF WORK, OF THE SAME KIKD AND QUALITY. 

If, on the other hand, the principle laid down be not 
universally true, then the case which the protectionist has in 
mind may arise, viz., where the American manufacturer, in 
branches of industry peculiarly unresponsive to the physical, 
intellectual and moral invigoration of their operatives, does, 
in fact, pay higher wages, for a given amount and kind of 
work, than is paid abroad. In this case, there would be a 
real, no longer a merely nominal, disadvantage in the cost 
of production, on the part of American manufacturers. 
That disadvantage the protectionist would seek to counter- 
balance, by weighting down the corresponding foreign 
products by means of customs-duties. 

But, in such a case, the question would arise as to the 
wisdom of the legislation which brought such industries 
into being, in a country whose people were fitted for higher 
work, and which invited, and, in a sense, compelled, to 
come to our shores such large numbers of persons whose 
descent, education and early experiences only fit them to 
take part in industries which are, as we said, ^'peculiarly 
unresponsive to the physical, intellectual and moral invig- 
oration of their operatives/' If government lets industry 
alone, in a country having an intelligent, spirited and 
' frugal population, only those branches of manufacture will 
arise which are of a nature to allow relatively high wages 



290 



POLITICAL ECONOMY. 



to be paid witlioiit increasing the actual cost of produc- 
tion. 

It will be seen that, in the view taken above, protection 
is, at the best, only a means of defending the working 
classes against the effects of a competition to which they 
are unequal, by reason of their ignorance, or indolence, or 
lack of self-respect and social ambition, or by reason of 
abuses and wrongs to which they have been subjected in 
the past. This chapter, then, is really a part of Chapter 
XXV. Among a generous, self -respectful, well-bred and 
well-educated people, applying themselves to the higher 
departments of industry, no such artificial protection, or 
support, will be required. 



CHAPTER XXVII. 
THE CONSUMPTION OF WEALTH 

267. The Meaning of the Term.— By the term. Con- 
sumption, in political economy, we signify the use made 
of wealth. We have seen how wealth is produced and ex- 
changed. We have inquired respecting the forces which 
distribute the product of industry. We are now to ask, 
what men shall do with the shares they receive in that 
distribution. 

The consumption of wealth is not identical with its 
destruction. To be sure, most forms of wealth that are 
put to use do, sooner or later, disappear ; but to most of 
them this would happen, in time, whether they were used 
or not. We do not wait until an item of wealth has been 
destroyed by use, before we speak of it as consumed. It 
is, in the economic sense, consumed when it is put to its 
destined use, although the material of it may last for a 
long time thereafter. Cloth is consumed, as cloth, when 
it is made into garments. The garments are consumed, in 
the economic sense, when they pass to their destined 
wearer, although they may still be good for years. Iron 
beams and bars and rods are, in the economic sense, con- 
sumed when they are built into the frame of a bridge. 
The bridge, however, remains to carry passengers and 
freight for generations. 

268. The Importance of Consumption.— Many, indeed 
' most, economists have left consumption altogether out of 



293 POLITICAL ECONOMY, 

their treatises, holding that it was not their business to go 
into that subject. But, surely, if we are studying political 
economy because of the importance of wealth to human 
welfare, or to the strength and stability of the State, we 
cannot afford to pass-by the questions of consumption. In 
the case of any people, the ways in which they are con- 
suming their wealth — that is, the uses to which they are 
putting it — are of far more consequence than the present 
amount of that wealth. In the case of a nation, as of an 
individual, very large accumulations, with foolish or vi- 
cious modes of expenditure, may intimate a less prosperous 
future than a moderate stock, which is being used temper- 
ately and wisely. 

Existing wealth may be applied to ends which inspire 
social ambition, which restrict population within limits 
consistent with the general welfare, which increase the 
efficiency of the laborer and supply instruments for mak- 
ing his labor still more productive ; or it may be used in 
ways which encourage the undue increase of population, 
bringing-in poverty, squalor and disease ; in ways which 
debauch the laborer, morally and physically, striking at 
both his power and his disposition to work hard and con- 
tinuously. The completeness with which the French peo- 
ple, through their temperance, frugality and industry, 
made up in a few years the terrific fines and losses of the 
German war (1870-1), affords a very striking illustration 
of the virtue there is in the labor-power of a country rap- 
idly to replace its capital, provided only a right consump- 
tion of wealth be assured. 

The secret of a nation's rise or decline in prosperity is 
not to be found chiefly in its situation and natural advan- 
tages for commerce ; not in its soil and climate ; not in its 
good or evil fortune ; not in the malice of its enemies or in 
the help of its allies. That secret lies in the use which 



POLITICAL ECONOMY, 293 

the nation makes of the wealth, be that ample or scanty^ 
which its powers and resources enable it to produce. 

" What will he do with it V is the question which is 
asked (not spoken) of every man, at every turn of life : 
what will he do with the new opportunity : how will he 
meet the new danger : to what use will he put the treasure 
that has fallen at his feet ? Eminently, in regard to the 
wealth of nations, " What will they do with it V is the 
question of questions. 

269. Population. — The use which, in a primitive com- 
munity, is most likely to be made of existing wealth is to 
support an increasing population. Let us take the case of 
a tribe, occupying a district of moderate extent, cultivat- 
ing the soil of the fertile valley of their native stream, 
pasturing their cattle and sheep on the mountain sides, 
and practising certain rude mechanic arts. Now, in such 
a state, ihe instincts and appetites wliicli lead to the 
mitltiplication of members will be those which are earliest 
and most strongly felt, after the appetites which crave 
food and warmth. The food may be coarse, all of one 
kind, prepared without skill, eaten on the ground. The 
desired warmth may be obtained in close hovels, or possi- 
bly in caves, amid the foulest of air and the grossest of 
filth. These things matter not. As soon as food and 
warmth have been obtained, even in such a miserable way, 
the appetites which lead men to marry and to breed after 
their kind will make themselves felt ; and will thereafter 
practically take possession of all the remaining wealth of 
the community, to use it for their own purposes. 

Now, the capabilities of human increase are vastly in 
excess of the capability of supporting life, within any defined 
field. Mankind have, over and over again, shown that, 
under favorable conditions, population can be doubled in 
twenty -five, in twenty-two, and, perhaps, even in twenty 



294 POLITICAL EG0N0M7. _ 

years, in spite of sickness, accidents and premature deaths. 
If, then, the tribe we are speaking of numbers one thou- 
sand, it may, at the end of one century (assuming that 
population doubles itself in twenty-five years) contain six- 
teen thousand souls. Had the valley and the mountain 
sides been but sparsely settled at the beginning of the cen- 
tury, the sixteen thousand, who would occupy these seats 
at the end of the century, might be no more than a com- 
fortable population. Indeed, the sixteen thousand might, 
owing to the advantages of the division of labor, live bet- 
ter than the one thousand did. 

But, even if so, the quarter of a million of persons (256,- 
000), who, at the end of another century, would take their 
place, should increase go on in a geometrical ratio, would 
probably be reduced to the last stages of human misery, 
through the operation of the principle of Diminishing Re- 
turns in agriculture (Chap. V). Did famine, fever or inter- 
necine war not come in to check the growth of population, 
the quarter of a million would, at the end of still another 
century, have grown to (4,096,000) more than four millions! 
That population would, of course, be impossible. To pre- 
vent such a result, famine and the fevers which feed on 
the half-famished, would, every year or every few years, 
sweep through the valley, cutting-off thousands at a time; 
or, else, the unhappy inhabitants, driven to despair through 
lack of food, would prey upon each other, or, under some 
bold leader, would pour out of their valley, a great devas- 
tating horde, to fight with neighboring tribes for the pos« 
session of their land. 

Such are the capabilities of human increase.* If, then. 



* The law of population, thus briefly set forth, bears the name of 
Mr. Malthus, an English clergyman. The doctrine is called Mal- 
thusianism. Mr. Malthus was, at the time, roundly abused for his 



POLITICAL ECONOMY. 295 

the instincts and appetites whicli lead to the multiplication 
of numbers are to remain (as they always are at the be- 
ginning) the appetites which come next, in order and in 
strength, after the desire for food and warmth, the history 
of every tribe of men will be what we have described, and 
no other. All the wealth which is left-over, after feeding, 
clothing and housing, in the meanest manner, the existing 
population, will be continually used-up in the attempt to 
support an increasing population. There is, speaking 
broadly, no other consumption of wealth known to the 
savage or the barbarous man. Even so, as we saw, all the 
wealth available will not suffice to carry-on the natural 
process for more than a century or two, without giving rise 
to the most hideous physical evils. 

270. Higher Economic Desires. — The question, tlien> 
whether there is to be any other consumption of wealth — 
Irhether, in fact, the beginnings of civilization are to be- 
come possible — is the question, whether other economic de- 
sires shall come to force themselves in front of the appetites 
which lead to the multiplication of numbers. If this is not 
to take place, no economic improvement will be possible; 
and all religious and social influences for the better, which 
may be exerted from the outside upon any such tribe, will 
be feeble and transient, like marks made upon the sands 
which have been uncovered by the tide. 

Observe : there are two reasons why it is to be desired 
that other economic desires should come in, and, in some 
degree, crowd-out the appetites which lead to the multi- 
plication of numbers. 

plain speaking. But people have now learned that the whole truth 
should be spoken on this subject. If men will breed like vermin, 
they must die like vermin. If men will be " lords of the universe," 
they first must be lords of themselves. If they would be masters 
of their conditions, they must be masters of their appetites. 



296 POLITICAL BGONOMY, 

First, simply because only in tliis way is the frightful 
round of over-population, famine,- disease and internecine 
war, with all its chaos of horrors, to be prevented. From 
this point of view, it does not matter whether the new 
economic desires are higher in their moral and social char- 
acter, or not. Almost anything is better than that the 
increase of population should not be, by some cause, 
restrained. Secondly, because such other economic desires 
are likely to be, or in time to become, higher and more 
beneficent than those which they replace. 

And, yet, those new desires are not likely to be, at 
first, much higher. Mankind do not make progress by 
leaps, but, at the best, by slow and painful steps, which 
often slip, and often lead to falls. No great advancement 
is to be expected, in the beginning, from people in the 
etage of life which we have been considering. 

The early economic desires of different communities vary 
greatly. In one, the first want felt, after the absolute 
necessaries of life are obtained, is of ornament and decora- 
tion. Even when men are hardly covered from the cold 
and scantily nourished, the passion for display makes its 
appearance. In another community, the first want felt, 
after the claims of bare subsistence are met, is of a 
store for the future, as a provision against the caprices 
of the seasons and the casualties of life. The first want 
emerging in the life of another community may be of 
wealth to be expended in worship and in honor of the 
national or local deity. Millions of men may consent to 
live squalidly, in order that a few temples may shine like 
the sun, their altars sm-oke with unending sacrifices, their 
priests walk resplendent with embroidered and jewelled 
vestments. In still other communities, the new want may 
take the form of a desire for a diversified diet, or for leis- 
ure, or for some costly drug or drink, like the opium of 



POLITICAL ECONOMY, 297 

the East Indian or the Chinaman, or the " fire-water'* of 

the North American Indian. 

271. A Diversified Diet. — Doubtless, the want which has 
been efficient on the largest scale, at once in promoting 
labor and in restraining population, is the craving for a 
diversified diet. Once let the sole diet of the barbarian, 
be it fish, or fiesh^ or grain, be crossed by other species of 
food, exciting the pleasure which resides in variety ; and 
an economic force has been introduced into the life of the 
community which is capable of producing mighty results. 
Probably this has been the lever by which more tribes and 
races of men have been raised and kept, one degree at 
least, above the condition of a population pressing all the 
time upon the limits of subsistence, than by any other. 

Although a diversified diet doubtless contributes, in some 
degree, to health and vigor, it is yet a pure luxury, in the 
sense that it is not sought upon that account, but wholly 
for the gratification of appetite. It will seem strange to 
the reader that a desire for objects of luxury should be 
spoken of as having greater power to promote effort and to 
check population than the fear of privation and actual 
misery. Yet so it is; and, as we go up the scale of human 
wants and desires, we shall find that, in general, the higher 
the want or desire, morally considered, the stronger it 
proves to be. In an advanced civilization, mere senti- 
ments and tastes, which involve the gratification of no 
physical sense, impel men to the most painful and pro- 
tracted exertions, and hold in check the strongest passions 
of the lower nature. 

272. A Rising Scale of Expenditure. — Contemplating a 
community which has grown above the low desires which 
control and completely master the barbarian; and which 
has, by the force of higher personal wants, attained the 
power of checking population, otherwise than through dis- 



298 POUTIOAL ECONOMY, 

ease and famine, we say that the entire future of such a 
community depends upon the further growth of economic 
wants among its members. If they are to remain content 
with a low scale of personal expenditure^ they will waste in 
idleness or sport all the time which is gained for them by 
improvements in the arts and by the discovery of new re- 
sources in nature. 

There have, indeed, been tribes of men who could remain 
on such a low scale of living, and yet cultivate arts, letters 
and philosophy, and apply their leisure to social and intel- 
lectual improvement. Even so, however, such a civiliza- 
tion is highly transient ; liable to be swept away by every 
wave of foreign force, or broken-up by a single outburst of 
domestic sedition. Generally speaking, it is only the na- 
tions that are eager to improve their material condition 
which cultivate the arts and increase in knowledge and in 
refinement. It is such nations, alone, that can found a 
permanent civilization. The reason for this is threefold. 

First, the physical and mental activity to which men are 
incited by the desire for greater wealth, with which to 
purchase more of the comforts, decencies and luxuries of 
life, constitutes, itself, the greatest of all means of intel- 
lectual and moral education. By it, the faculties of the 
barbarian are awakened from a torpor which is akin to 
death; are stimulated to the highest pitch; are trained by 
appropriate exercises, through which they continually gain 
in strength, in suppleness, in persistency. By it, the low 
desires, the brutal cravings, the gross vices of the barba- 
rian are repressed; while nobler motives and higher tastes 
come into consciousness and become, mcreasingly, the law 
of life. It is in this way that the small-brained have grown 
into the large-brained races. It is in this way that timid 
and indolent peoples have developed into peoples that de- 
light in encountering danger, in overcoming difficulties, in 



POLITICAL EGONOMT, 299 

enduring hardships; and whose spirit mounts with oppcK 
sition. 

273. Civilization. — Secondly, wealth, in its various forms, 
furnishes the tools and the materials for the finer arts and 
the higher studies ; furnishes, also, the means by which the 
results of those arts and studies are extended and brought 
to the knowledge and enjoyment of all. 

Thirdly, every civilization which is not embodied in in- 
stitutions, in permanent structures, in accumulated re- 
sources, is always liable to fall rapidly away, under the 
influence of physical disaster, or foreign hostility, or 
through the mere force of weariness and disgust. It is 
institutions, permanent structures, accumulated resources, 
which enable each successive generation to hold firmly on 
to the past, to go strongly through its own difficulties and 
dangers, and to transmit the arts, tastes and powers which 
it has inherited, unimpaired to its natural successors. 

Man is distinguished from the other orders of animals 
by his susceptibility to new desires. Those desires may, by 
appropriate influences and by the course of experience, be 
made to increase almost indefinitely, both in number and 
in variety; and it is generally true that the latest desire 
becomes the most urgent and persistent of the series. The 
man of the modern state toils, night and day, to procure 
for his children articles which do not minister to any bod- 
ily sense, but are required by the existing standard of social 
decency. The man of the primitive state will run the risk 
of suffering and famine, to him and his, rather than make 
the most moderate exertions and sacrifices to provide a 
store for the future. 

In this matter, as in everything else, *'it is the first step 
which costs." The greatest difficulty is in introducing 
into the life of a people any tastes or desires, whatever, 
beyond those fundamental wants of which we have spoken. 



300 POLITICAL ECONOMT. 

Once let a community be lifted out of the mire of exist- 
ence, by this lever, and new wants will come, thick and 
fast, upon them. As soon as any new want is felt, their con- 
dition will seem to them intolerable, unless that want can 
be supplied ; and, so, the elevating and ennobling process 
will go on, without a stop, unless some great catastrophe, 
or some great debasing cause, shall enter to throw them 
bacK into hopeless misery and social degradation. 



CHAPTER XXVIII. 
SOME MISTAKEN NOTIONS ABOUT CONSUMPTIOlf. 

274. Prevalence of False Notions.— There is probably no 
subject in political economy which is so much beset with 
false notions as is the consumption of wealth. Persons 
who have never thought much about the production, the 
exchange or the distribution of wealth, are almost certain 
to have their own ideas about its consumption ; and these 
ideas are very apt to be erroneous. There would seem to 
be something in the nature of the subject which makes it 
difficult for men to see more than one side of any question 
which concerns consumption. 

275. The Destruction of Wealth.— We have seen that 
most forms of wealth are necessarily destroyed, sooner or 
later, by being used. Such a destruction of wealth is, of 
course, neither to be rejoiced over nor to be regretted, 
since these forms of wealth are produced with this very 
result in view. But there is, among very large numbers 
of persons in every community, a disposition to look at the 
premature destruction of wealth by any cause, as something 
either good in itself or, at any rate, having advantages to 
counterbalance the loss sustained. In the common phrase, 
it is supposed to "create a demand for labor ;" to "en- 
courage industry, ^^ etc. 

The notion mentioned above is seldom found among 
agriculturists. Men who have taken part in raising crops 
are not much disposed to look at tne destruction of those 

301 



308 POLITICAL ECONOMY. 

ciops, or of the barns which shelter them, or of farm* 
ing implements or machines, as bringing good to any one. 
Among commercial and manufacturing populations, how- 
ever, this belief is very prevalent. Working men are 
apt to hold it ; domestic servants are perfectly sure that 
their breakage *' makes trade good -" even many highly 
educated people cannot free themselves from the instinctive 
feeling that the abrupt removal of existing wealth quickens 
industry and promotes the general welfare. 

276. Destruction Sometimes Means the Eemoval of Ob- 
struction. — There are, of course, situations, where the de- 
struction of wealth may have the effect to secure a larger 
production, in the future. Thus, a man may occupy a 
^' water privilege"" with an old-fashioned badly-built mill, 
which he cannot find it in his heart to tear down. He may 
know that it would be better to do so ; but he puts it off 
from year to year, doing what he can with the old mill and 
its old machinery. Every year he gets further and further 
behind, as new and better mills are built all around him. 
One night a fire breaks out ; and a year later, a fine, large, 
new mill occupies the site, in which a great deal more and 
a great deal better work can be done. It is not unlikely 
that, in five or ten years, the manufacturer, himself, will 
be richer than he ever could have been with the old mill ; 
while a larger number of operatives are engaged, at higher 
wages, producing goods which are required for the clothing 
of the community. 

Again, two towns, on opposite sides of a river, may long 
have put-up with a mean, narrow, unsafe and inconvenient 
bridge, which has always been an obstruction to traflSc. A 
flood comes and carries the bridge down the river : where- 
upon the towns unite in building one fully suited to their 
needs, broad and firm, with ample approaches from both 
sides. This may give such an expansion to the industrial 



POLITICAL ECONOMY, 303 

activity of both towns as, in a short time, to more than 
repay the cost of the new bridge. 

Still again, it is an undoubted fact that the destruction, 
by fire, of the old and crooked parts of certain cities, filled, 
with '^rookeries^^ and tumble-down houses, repulsive in 
aspect and almost impassable to traffic, has led to a large 
increase of wealth. It had long been known that that 
^' quarter^' was a nuisance and an obstruction to the growth 
of the city and to the development of its trade. But each 
property-holder felt that it was of no use for him to pull- 
down his own miserable houses and to build better, so long 
as his neighbors were not ready to do the same. Thus, one 
man waited for another ; while all were disposed to put-off 
the day of making improvements at so great an expense. 
A conflagration comes; burns down the rickety houses, foul 
with the accumulated filth of generations ; and in a few 
years that wretched quarter has been replaced by broad 
streets and convenient and wholesome houses. The city is 
wealthier and healthier for the change; and even the indi- 
vidual property-holders may be richer than before. 

277. What We See and What We Don't See.— But the 
disposition to rejoice in the destruction of wealth is not con- 
fined to instances like the foregoing, where nuisances and 
obstructions are removed. It extends to cases where the 
existing forms of wealth were well answering the purposes 
for which they were created. That disposition is due to the 
fact that those who rejoice see only one side of the effect. 
They see that, where wealth is destroyed, other wealth gen- 
erally flows-in, to take its place ; and labor and capital are 
soon actively, perhaps hurriedly, employed in repairing 
the waste. What they do not see is that this labor and 
capital are drawn from other avocations and from other 
places, where, but for the fire or the flood, they would be 
engaged, though without making so much stir^, in produc- 



304 POLITICAL ECONOMY. 

ing new forms of wealth, wholly in addition to those which 
have been destroyed, thus increasing the total sum of 
wealth to be enjoyed by the community. 

278. Luxurious Consumption. — Regarding the consump- 
tion of wealth in what we may call, without attempting 
closely to define it. Luxury, two popular notions are preva- 
lent. These two notions are largely opposed to each other ; 
yet they may both be equally erroneous. Both are often 
held by the same persons, at different times, according to 
the mood in which their minds are, at the moment. 

One false notion concerning the consumption of wealth 
is that which regards all personal expenditure which is very 
greatly above what the mass of people can indulge in, as 
an injury to the community and as a wrong to the laboring 
classes in particular. Now, in order to get a plain view 
of this matter, let us take the case of a manufacturer who 
produces goods to the value of five hundred thousand dollars 
annually, out of which he realizes a profit of twenty-five 
thousand dollars. Let it be conceded that five thousand 
dollars would furnish decent and comfortable subsistence 
for the manufacturer's family, including proper education 
for his children. But he is not satisfied with so moderate a 
scale of personal expenditure. He spends another five 
thousand dollars upon things which, while they are not es- 
sential to comfort and decency, are yet not so far out of 
the common as to attract public attention and to make him 
and his family conspicuous. In addition to all the fore- 
going, he expends ten thousand dollars in display and self- 
glorification, in luxuries of the most extravagant cost, 
upon pleasures of the most ephemeral nature. This leaves 
him but five thousand dollars to put into his business, or 
to lay up in bank. 

Now, it does not need to be said that it would be better 
were the manufacturer in question wise enough to save a 



POLITICAL ECONOMY. 805 

larger portion of his profits, either as a means of increas- 
ing his business, or as a reserve against the future. Again, 
it does not need to be said that it would be better, in case he 
is to expend twenty thousand dollars of his income, were he 
wise and generous enough to spend that sum in ways which 
would bring more good to his fellow men, do more credit 
to himself, and afford a better training for his children. 
But the question is not, whether something much better 
might not have been done with this amount of wealth, but 
whether such a use of it constitutes a positive injury to the 
community, or is, in any sense whatsoever, a wrong to the 
laboring classes. 

The point which is overlooked in the popular view of this 
question, is that, this manufacturer's tastes, habits, ideals, 
ambitions being (by force of nature and of education) what 
they are, the power of indulging in such expenditures is a 
great part of the motive which leads him to carry on busi- 
ness and to apply perhaps great abilities, with untiring 
energy and unflinching courage, to the production of 
wealth. It is, of course, a pity that the man has not 
simpler tastes and higher ambitions ; but we have to take 
the man as we find him. Deny him the opportunity to 
indulge his own impulses in the expenditure of his wealth, 
and you destroy or largely impair the energy which he 
would otherwise bring to the conduct of business. As it is, 
he pays out several hundred thousand dollars a year for labor 
and for materials which are mainly the product of labor. 
The fact that he has realized twenty-five thousand dollars 
in profits is proof that he has conducted his business with 
great energy, skill and prudence. Other men have had 
control of equal amounts of labor and of capital, and have 
realized no profits. 

We conclude, then, that luxurious expenditure, even 
though its objects are not altogether well and wisely chosen. 



806 POLITICAL ECONOMY. 

may be far from injuring the community or wronging the 
laboring class, since it may furnish the motive required for 
securing the most intense and unremitting application of 
Business Ability to the work of production. 

On the other hand, there is a disposition very frequently 
manifested, to applaud luxurious expenditure, even in its 
most extravagant forms, as a good thing in itself, because 
it "makes trade good,^' "puts money in circulation,^^ 
*' gives employment to labor, ^^ etc. Whenever any great 
exhibition of extravagance is given, there are always found 
those who approve it for such reasons. 

Again we say, those who take this view of the expendi- 
ture of wealth, see only one side of the case. While most 
forms of extreme luxury do, at the time, give employment 
to labor and give " a fillip'^ to trade, there is almost always 
some use to which that wealth might have been applied 
which would have proved, in the long run, much more 
beneficial to the community at large and to the laboring 
class in particular. 

Let us suppose that a well-to-do manufacturer, who 
might have provided a decent, comfortable and even hand- 
some home for his family, at a cost of twenty-five thousand 
dollars, is moved by vanity and love of display to put one- 
hundred thousand dollars into his dwelling, with green- 
houses and stables. It is true that the additional seventy- 
five thousand dollars is expended for labor, or for materials 
which are mainly the product of labor. It is true, also, 
that, so long as the estate is properly kept-up, a few addi- 
tional servants, gardeners and grooms will be employed. 
But, had the seventy-five thousand dollars been applied to 
the building of a new factory or to the improvement of a 
large tract of agricultural land, an equal amount of em- 
ployment would have been given to labor, in the first in- 
stance ; while, through all succeeding time, employment 



POLITIOAL EOONOMT. B07 

would be afforded to a number of laborers ten, twenty or 
perhaps thirty times as many as those who would be em- 
ployed in keeping-up the fine house and grounds. 

279. Government Expenditures.— Another subject, in 
regard to which public opinion is very apt to go wrong, is 
the expenditure of wealth by government. In approach- 
ing this subject, it needs to be said, in the first place, that 
there are many and large occasions, in every highly civil- 
ized community, for government to consume wealth for the 
general welfare. Not only must the State preserve the 
public peace and protect person and property, at a great cost 
forjudges and jails, for policemen and soldiers, but there 
are many things which nearly all citizens are now agreed 
should be done by the State, which are not so much of a 
protective, as of a productive, character. 

The streets of cities and the highways which cross the 
country should, for the best effect, be laid out by the govern- 
ment. The bridges, by which the public roads are to cross 
streams and rivers, should be built by the State ; and it is 
by some made a question whether the docks and wharves, 
at which vessels are to load and to unload, should not be 
provided in the same way. Whether this would be wise or 
not, it is certain that the improvement of rivers and har- 
bors, at enormous cost, the maintenance of a lighthouse 
system and the construction of breakwaters, are the proper 
work of government. The water supply of cities is largely 
provided by public authority, out of public revenues, and 
in some cases, also, the gas supply. In nearly all countries, 
the telegraphs and in many countries the railroads, also, 
are owned and operated by the government. In addition 
to these and similar works which government undertakes, 
the State has vast expenditures to make for elementary 
schools and, perhaps, also, higher institutions of learning ; 
for museums and libraries; for parks and pleasure grounds. 



S08 POLlfiOAL EGOmMT. 

The popu ar error regarding governmental expenditures 
is not in approving the consumption of wealth which is 
actually required for carrying on useful works ; but in 
looking at government expenditures as good in themselves, 
as ^^ putting money into circulation," and as having a kind 
of virtue to "promote trade and industry." There are 
found, in every community, many persons, otherwise intel- 
ligent, who are ready to applaud '^ liberal " expenditures 
j)n the part of the government, not as the necessary price 
of things which actually require to be done, but as being 
beneficial in themselves. 

The trouble with these people, also, is that they see only 
one side of the matter. They see that, at whatever point 
government disburses its revenues, there is a distinct in- 
crease of activity in production and in trade. They fail to 
note the less intense but much wider effects which are pro- 
duced upon production and trade, all over the l^nd, by the 
taxes through which the government collects those reve- 
nues. Every dollar which the government expends with 
one hand, it must take away from somebody with the other 
hand. Indeed, that the Treasury may have one dollar to 
spend, it has to take from the people a dollar and ten cents, 
or a dollar and twenty cents, because of the expenses of 
assessment, collection, disbursement and public account- 
ing. In order, therefore, to encourage one person or set of 
persons by its expenditures, to the extent of one dollar, 
government has to discourage another person or set of per- 
sons, by its taxes, to the extent of a dollar and ten, or 
twenty, cents. This constitutes no sufficient reason why 
government should not collect money for great public 
works which iodividuals could not construct at all, or 
could not maintain to advantage; but it does constitute a 
very strong reason why government expenditures should 



POLITI CAL EGONOMT. 309 

not be made any larger than is necessary, from any vague 
notion of encouraging trade and industry thereby. 

280. Over-Production. — All the erroneous notions re- 
garding the consumption of wealth, which wd have pointed 
out in this chapter, spring largely out of one fundamental 
error, which is very widely spread in the public mind, and 
which finds its expression in the familiar phrase, Over-Pro- 
duction. There is a very common tendency to think of 
wealth, after it has once been produced, as somehow getting 
in the way, so that other wealth cannot be produced until 
this has been consumed. The fact is, physically speaking, 
men might go on producing wealth to the end of time, 
and not consume any of it, without encumbering the earth 
thereby, or blocking the way to further production. Of 
course, morally speaking, men will produce wealth only as 
they expect it to be consumed, or used. It is our business, 
then, to inquire whether there is any natural limit to the 
amount of wealth that can be consumed. If there is not, 
then such a thing as true over-production cannot take 
place. 

Let us look around. We see, in the community in which 
we live, men who earn three hundred dollars a year, on 
which to support their families ; others, four hundred ; 
others, five or six hundred ; others, still, one thousand, 
two thousand, or three thousand ; still others, perhaps, 
five thousand, ten thousand, or twenty thousand. Is there 
any family, now expending three hundred, or four hundred, 
or five hundred dollars, which could not, and would not 
gladly, expend twice or three times as much, if they had 
it ? Do not the members of those families know the very 
things they would like to purchase, with added means : 
things, probably, which would be not only harmless, but 
actually, and perhaps highly, beneficial ? Is there any 
man, now expending one thousand or three thousand or 



SlO POLtTIGAL BGONOMT, 

five thousand or ten thousand dollars, who could not, and 
would not gladly, expend twice or three times as much, if 
he had it for the purpose ? Let the reader try to put 
himself in the place of persons of these different classes, in 
succession; and he will soon be satisfied that it is idle to 
suppose that more wealth is likely to be produced than 
men would be ready and glad to consume. Yet just this 
is what is meant by over-production. 

But, while universal over-production is thus seen to be 
practically impossible, it not infrequently happens that 
over-production takes place in certain lines. This we 
should call Partial Over-Production. For example, we 
might suppose the production of woollen goods to be 
enormously increased. Let us say that it is doubled within 
a year. Even so, it is not probable that there would be 
more woollen goods in existence than people would like to 
use, for no community was ever so well clothed but that a 
great many more garments would be welcome. But, when 
a poor family have bought a certain quantity of woollen 
goods, they do not want to buy any more of these until 
they have a certain amount of cotton goods and of linen 
goods. In the case supposed, therefore, there would be a 
relative over-production of woollen goods : an over-pro« 
duction, that is, in comparison with the amount of cot- 
ton and linen goods produced. Hence, there might be no 
^' market '' for a portion of the stock of woollen goods ; and, 
consequently, some of the woollen mills might have to re- 
main idle for months. • 

We might suppose, again, that the increase of produc- 
tion had taken place through all the branches of the textile 
manufacture, in silk, linen, and cotton, as well as in woollen 
goods. There would, perhaps, be no more textile fabrics 
in existence than people would be glad to use ; but, after 
people have bought a certain amount of textile goods, they 



POLITICAL ECONOMY. 811 

do not want to buy any more until they have a certain 
amount of glass ware, of china, of wooden ware, of iron 
ware, of carriages, of pictures, etc. There might, then, 
in the case supposed, be an over-production of textile fab- 
rics, in general: an over-production, that is, in comparison 
with other kinds of manufactured goods. 

Over-production might even be extended to all kinds of 
what we call manufactured goods. Not that there would 
probably be more of manufactured goods than people would 
be glad to consume, if they had them ; but that there 
would be more of manufactured goods than people would 
be willing to purchase until they had bought more of agri- 
cultural produce, or until they had built themselves better 
houses, or until they had been able to construct more roads 
and bridges. 

It will thus appear that partial over-production may be 
carried a great way. The history of industry also shows 
that over-production is very likely to take 'place, in one 
line, or in several lines, sometimes in many lines together. 
If the price of a certain article, or of several articles, has for 
some time been high, owing either to a falling-off from the 
nsual supply or to a sudden and large increase of demand, 
employers of labor and owners of capital are very likely to 
rush-in, almost tumultuously, and build many more mills 
or works, in order to take advantage of the high price. 
Soon it is found that the '^ plant''' is much greater than is 
needed; yet each mill-owner for a while tries to keep his 
machinery and his hands employed. The result is over- 
production, followed by a long period of stagnation, per- 
haps by many failures in business. 

The reader will be prepared for the remark that, the 
further the division of labor is carried, the more widely 
trade is extended, the greater the localization and diver- 
sification of industry, the more numerous become the 



312 POLITIOAL EOONOMT, 

opportunities for this misukdeestandiitg between" peo- 
DUCEES AND CONSUMEES. That misunderstanding is the 
price which the world has to pay for the great advantages 
of industrial civilization. That price is, indeed, very high. 
It implies, at times, a frightful waste of capital and great 
suffering to the laboring class, from the failure of employ- 
ment in those lines where production has been over-done. 
Whether, in the further progress of industrial society, 
means will be found for preserving all the advantages re- 
sulting from the widest division of labor and the largest 
use of the machinery of production, and at the same time 
reducing the great loss which men now have to suffer 
through partial over-production, is a question which no 
one is wise enough to answer. 



THB EHIK 



INDEX. 



The references are to numbered sections, not to pages. 



Absentee landlords of Ireland, 
244. 

Abstinence, the creator of value, 
60; interest, the reward of ab- 
stinence, 313-6, 

Accident and fraud: influence 
upon profits, 193. 

Accumulation, how influenced 
by the rate of interest, 219-20. 

Adams, Henry C, Prof.: Out- 
lines of Lectures upon Political 
Economy, preface, page vi. 

Adaptations, Industrial, of dif- 
ferent peoples, 42, 149. 

Advertising expenses, saved in 
Co-operation, 207. 

Agriculture, subject to the law 
of Diminishing Returns, Chap. 
V; chiefly controlled by soil 
and climate, 148. (See Land 
and, also, Rent.) 

Agriculturists not prone to re- 
gard the destruction of wealth 
as a good, 275. 

American economists, erroneous 
views regarding the relation of 
capital to wages, 231. 

Americans, their industrial apti- 
tudes, 42, 209, 235, 262. 

Amsterdam, bank of, 110. 

Andrews, E. B., his Institutes of 
Economics: preface, page vi. 

Apprenticeship, time saved by 
division of labor, 48. 

Argyle, Duke of: restrictions on 
tlie contract for labor, 251. 



Aristotle on usury, 214. 

Art: political economy as an ayt 

(a branch of statesmanship) 

distinguished from political 

economy as a science: preface, 

page V. 
Assertion by the laboring classes 

of their own interests, essential 

to general well-being, 239, 247, 

255, 257. 
Australia, gold discoveries, 109. 
Authority, legal, excluded from 

our definition of value, 3, 4. 
Automatic regulation of metallic 

money, 140; political money 

not so regulated, 142. 

Balance of trade, 124-7. 

Banks, Chap. XIV. 

Banking functions, the, 116-24; 
the banking agencies, 128. 

Bank-money, 113-5, 129-141; its 
volume, how regulated, 141. 

Bankruptcy laws: in early times, 
very severe, 101-2; if ill-con- 
sidered, may increase the pro- 
portion of incompetent em- 
ployers, 242. 

Barter, the primitive form of 
exchange, 86-93, 133. 

Belgium, underfed laborers, 40. 

Bill brokers, 128. 

Bi-Metallism, 107-9. 

Birth-rate, its possibilities, 269; 
diminished by increase of 
economic desires, 270-2. 

313 



814 



INDEX. 



Blaine, Secretary: report on tlie 
cotton manufactures of the 
United States, 262. 

Brabazon, Lord: inadequate food 
of French factory-hands, 40. 

Burke, Edmund, quoted, 250. 

Business Ability, one of the four 
agents of production, 22, 55, 
80, 188, 278; its remuneration 
(profits), 163, 189, Chap. XX. 

Business-paper (see Commercial 
paper). 

Caird, Sir James: houses in 
Scotland, 41. 

California, gold discoveries, 109. 

Calvin,, John, on Usury, 214. 

Cancellation of indebtedness by 
banks and clearinghouses, 120. 

Capital, one of the four agents in 
production, Chap. VIII, pars. 
22, 78, 163, 188; Capital in- 
vested inland, 171-2; circulat- 
ing versus fixed capital, 63-4; 
remuneration for the use of 
capital (interest). Chap. XXII; 
relation of capital to the 
scheme of co-operation, 198; 
relation of capital to wages, 
231; the use of capital enters 
into the cost of production, 77, 
79; how capital comes into a 
bank, 117; accumulation of 
capital as influencing the dis- 
tribution of industries, 148, 150. 

Capitalist, the (see Capital), a 
claimant in the distribution of 
the product of industry, 163; 
has no right to any part of 
Rent, 180; his share of the pro- 
duct. Chap. XXII; not to be 
gotten rid of by co-operation, 
198. 

Cash Principle, in retail trade, 
207. 

Cattle, as money, 96. 

Cereals, as money, 96, 104. 

Chadwick, Edwin; the cellar 
populations of English cities, 
41. 



Cheap money — is inconvertible 
paper money cheap? 131-46, 
cheap money does not make a 
low rate of interest, 227. 

Cheerfulness, as contributing to 
labor power, 43, 263-5. 

China, underfed laborers, 40. 

Circulating versus fixed capital. 
63-4. 

City Real Estate, differs in an 
important particular from 
agricultural land, 187. 

Civilization tends to diminish the 
sum of values, 60; how civi- 
lization is made permanent, 
272. 

Clearing house, the banker's 
bank, 121. 

Climate: influence on the distri- 
bution of industries, 148, 

Clothing, its relation to subsist- 
ence, 62, 263. 

Coin basis of bank monej'' (see 
Reserve). 

Coincidence, double, of wants 
and of possessions, 87, 133. 

Comfort, ideas of, developed in 
the progress of society, 9, 59, 
270-2. 

Commerce: old-time theory that 
it could be beneficial to but 
one party, 11. 

Commercial paper, its discount, 
221. 

Common Ownership of Land (see 
Nationalization, etc.). 

Competing countries: influence 
upon each other in the matter 
of wages, and of the standard 
of living, Chap. XXVI. 

Competition, 49; what is involv- 
ed in perfect competition, 162, 
234-5; effects of imperfect 
competition, Chap. XXIV; 
what can be done to remedy 
the effects of imperfect com- 
petition. Chaps. XXV and 
XXVI. 

Concentration of manufacturing 
industries, tendency to, 150-1. 



INDEX. 



815 



Congress of the United States, 
its unfitness for tariff legisla- 
tion, 155. 

Consumers of agricultural pro- 
duce have no right tc any part 
of Rent, 178. 

Consumers and producers, pos- 
sible misunderstandings be- 
tween, 280. 

Consumption of wealth, 59, Chap. 
XXVII; consumption, how 
influenced by bad money, 146; 
mistaken notions regarding 
consumption, Chap. XXVIII. 

Consumptive versus productive 
co-operation, 206; advantages 
of, 207; practical experience, 
208-9. 

Contract for labor: interference 
by law with, 75, 249, 251-2. 

Contract for labor: what deter- 
mines the price at which this 
is made, i.e., wages? 231. 

Convertibility of paper money 
(see Redeemability). 

Convict labor, 260. 

Co-operation, Chap. XXI; an 
effort to get rid of the em- 
ployer, 198; erroneous concep- 
tions of many economists, 198 
anticipated benefits, 199-201 
practical difficulties, 202-4 
consumptive versus productive 
co-operation, 206; special ad- 
vantages of consumptive co- 
operation, 207; practical ex- 
perience, 208-9. 

Corn-rents, 104. 

Corn-laws (English), 241. 

Cost of production, its relation to 
normal value, Chap. IX; rent 
does not enter into the cost of 
production, 164, 175; profits do 
not enter into the cost of pro- 
duction, 194; wages and inter- 
est alone constitute the cost of 
production, 165; relation of 
cost of production to the dis- 
tribution of wealth, 165, 188, 
210, 215-7; low cost of produc- 



Cost of production — continued. 
tion compatible with high 
wages, 261-5. 

Credit, commercial, largely man- 
aged by banks, 116. 

Credit sales, their great impor- 
tance in modern industry, 
100-2; make necessary a stand- 
ard for Deferred Payments, 
103; the Multiple or Tabular 
Standard, 106. 

Creditor class, 100-2. 

Custom, effect on price, 75. 

Dangerous employments, how 
compensated, 232. 

Debtors, laws regarding, 100-2. 

Debtor class, thei-r demand for 
paper-money issues, 138. 

Debts, Bad, loss by, 207. 

Debts, scaling down, 138. 

Decency, Ideas of, developed in 
the progress of society, 9, 59, 
270-2; power to check popula- 
tion, 270-2; desire for decencies 
promote efficiency in labor, 
263-5. 

Deferred Payments. Standard 
for, 103-5; political money as 
the standard, 134^42 (see Tabu- 
lar Standard). 

Degradation of the laboring class, 
through unequal competition, 
236-8, 263. 

Demand and supply, 15, 215, 
232; intellectual and moral 
elements of, 233. 

Demand, Causes which affect, 
69. 

Denominator of Values, 89. 

Deposit and discount, the great 
banking function, 116-7. 

Depreciation, not a necessary re 
suit of the inconvertibility of 
paper money, 133, 143. 

Desires, economic : their devel- 
opment in the progress of 
mankind, 9, 59; their influence 
in retarding the growth of 
population, 270-2. 



316 



INDEX. 



Destruction of wealth : popular 
notion that it stimulates pro- 
duction, 275-7. 

Deterioration, liability to, as af- 
fecting price, 74. 

Diet, diversified, taste for, as an- 
tagonizing the procreative 
force, 271. 

Diminishing Returns in Agricul- 
ture, Chap. V. 

Disadvantage, production at : 
preface, page v, Chapter X, 
pars. 160, 188, 215-18; influence 
on the distribution of wealth, 
165, 188, 194, 210, 215-18, 230. 

Discount and deposit, the great 
banking function, 116-7. 

Distribution, the Problem of. 
Chap. XVII; the several shares 
in distribution. Chaps. XYII 
and XVIII. 

Distribution, geographical, of 
money, how effected, 140. 

Division of Labor (see, also. Terri- 
torial Division of Labor) : how 
it arises, 47; how it becomes a 
source of productive power, 
48-54; evil possibilities attend- 
ant upon, 280. 

East India, inefficiency of its la- 
boring population, 35, 262. 

Economic Association, American: 
preface, page vi, also par. 202, 

Economics (see Political Econ- 
omy). 

Economics, Quarterly Journal of: 
preface, page vi. 

Education of the working classes, 
through their own efforts to im- 
prove their condition, 201, 248. 

Education, popular, effects upon 
industrial aptitudes, 42, 232, 235. 

Efficiency of the individual labor- 
er, dependent upon several 
causes, 36-46, 263; relation to 
wages, 230-1, 263-5; efficiency 
of bodies of labor, promoted by 
the organization of industry, 
47-54. 



Emigration of capital, 224; of 
labor, 235-7, 239- 

Employer, the: his industrial 
function, 55, 197, 203; his re- 
muneration, 163,189 (see Chaps. 
XX and XXI. 

Employer, the least competent: 
the productiveness of labor, at 
his hands, determines wages, 
85, 190, 192. 

Emploj'^ers, incompetent, how 
their control of business affects 
the distribution of wealth, 195; 
causes which tend to increase 
the proportion of such employ- 
ers, 241-2. 

Employed Laborer (see Laborer). 

Encouragement of Manufactures, 
the, 153. 

England: insufficient food and 
shelter of agricultural laborers, 
39-40; contrasted with India 
and Russia as to the efficiency 
of its laboring population, 35, 
262-5; banking agencies. 111; 
aristocratic holding of the soil, 
187; co-operative enterprise-s, 
202, 208; usury laws, 214; gov- 
ernment securities, 222; mortal- 
ity in certain avocations, 232; 
defective competition, 236, 
237 ; corn-laws, 241; remedial 
labor legislation, 246-50; strikes, 
257. 

English economists: their erro- 
neous views regarding the rela- 
tion of wages to the product of 
industry, 231; they oppose Fac- 
tory Acts, 251. 

Environment, Industrial, influ- 
ence of, 52. 

Esprit de Corps in industry, 51. 

Exchangeability, the test of value, 
3-8. 

Exchange, the old-time theory 
that it could be beneficial but 
to one party, 11. 

Exchange, as a department of po- 
litical economy, Part I. 

Exchanges, foreign, 124-7. 



INDEX. 



317 



Factory laws, 249, 251-2. 

Fashion, Changes of, as affecting 
demand, 69. 

Fawcett, H. : insuflacient food of 
West of England laborers, 40. 

Fiat money (see Inconvertible 
Paper Money). 

Financiering, as a banking func- 
tion, 110. 

Fiscal motives to excessive issues 
of paper money, 136. 

Fixed ^s. Circulating Capital,63-4. 

Food (see, also. Subsistence): its 
relation to labor-power 37-40, 
237-8, 263; the primary form 
of capital, 62; its relation to 
population, 269. 

Force, Productive, cannot be lost 
out of nature, but may be lost 
out of man's reach, 25. 

Forced circulation, generally a 
characteristic of government 
paper money, 133. 

Form value, 20. 

France: underfed factory hands, 
40; bimetallic system, 108-9; 
rapid recovery from effects of 
German war, 268; popular ten- 
ure of the land, 187; co-opera- 
tive enterprises, 202. 
Fraud and accident: influence on 

Profits, 193. 
Free Trade m. Protection, Chap. 
XVI; the Pauper Labor argu- 
ment against free trade, Chap. 
XXVI. 
Freedom, real vs. nominal, 252. 
Frugality, awakened by owner- 
ship of land, 45; the creator of 
capital, 60; encouraged by Co- 
operation, 200. 

Gains which no man loses, 238, 
263. 

Gains, Unearned, do little good 
to any, 104, 144-6. 

Geometrical progression in popu- 
lation, 269. 

George, Henry, his "Progress 
and Poverty," 183. 



Germany: has to protect itself 
against England, while Russia 
protects itself against Ger- 
many, 262. 

Gilman, N. P., Profit Sharing, 
205. 

Girdlestone, Canon: diet of the 
laborers of Devonshire, 40. 

Glut (see Over-production). 

Gold (see Precious Metals. See, 
also, for its relations to silver, 
Bi-Metallism). 

Government, as producer and 
consumer, 279; restraining 
greed and imposing conditions 
upon industry, 251-2 (see The 
State). 

Government expenditure, how 
far to be encouraged, 279. 

Grain, as money, 96. 

Gratuity, its relation to value, 60. 

Greed, often antagonistic to the 
enli2:htened pursuit of wealth, 
11, 251-2. 

Greenbacks, so-called, of the 
United States, 137, 143. 

Ground-rents, 159, 163, 187. 

Habit, influence on price, 76. 

Hazardous risks of capital, how 
compensated, 221-3. 

Health is not wealth, 6-8; effect 
upon health of certain avoca- 
tions, 232. 

Hebrews, ancient, usury forbid- 
den, 214. 

Hireling, the, lack of interest in 
production and in care of 
wealth, 46 (see Co-operation). 

Holland, underfed laborers, 40. 

Honesty: its relation to punctu- 

• ality, 123. 

Hopefulness in labor, as an ele- 
ment of productive power, 43, 
263-5. 

Huskisson, William: repeal of 
the English laws against Com- 
binations, 247. 

Immobility of Capital and Labor 
(see Emigration, etc.). 



318 



INDEX. 



Improvements made upon the 
Land; the returns to them 
should be distinguished from 
Rent, 171-2. 

Inconvertible paper money, 
Chap. XV; its multiplication 
does not reduce the rate of in- 
terest, 237; increases the pro- 
portion of incompetent em- 
ployers, 242. 

Increment, the Unearned, of 
land (see Rent). 

Indebtedness, Cancellation of, 
120. 

India: the efficiency of its labor- 
ing population contrasted with 
that of England, 35; underfed 
laborers, 40. 

Inertia, Mental, influence on 
price, 76; on rate of interest, 
224. 

Inflation (money), Chap. XY; 
effects of Inflation, 142-6. 

Inglis, H. : the city houses of Ire- 
land, 41; industry of peasant 
proprietors, 45. 

Institutions, essential to civiliza- 
tion, 272. 

Insurance of the principal, an 
important element of interest, 
221-3, 228. 

Intellectual elements of supply 
and demand, 233. 

Intelligence is not wealth, 6-8; a 
source of productive power, 42. 

Interest, as a share of the pro- 
duct of industry, 163, Chap. 
XXII; what determines the 
rate of interest, 215-6; justifi- 
cation of interest, 213-4; in- 
terest is not paid, generally 
speaking, for the use of money, 
but of capital, 214, 227. 

Interest contrasted with Rent, 
225; rate of interest tends to 
decline, 226. 

International Distribution of 
Money, 140. 

International Division of Labor 
(see Territorial, etc.)« 



Invention facilitated by the di- 
vision of labor, 48. 

Investment of Capital, 63-4; as 
affecting the supply of com- 
modities, 73. 

Ireland, peasants' houses, 41; 
rents in, 244-5. 

Irish, their industrial aptitudes, 
45, 244-5. 

Jevons, W. S., Prof., quoted. 

252. 
Joint stock banks, 128. 

Knies, Prof.: his classification 
of values, 17. 

Labor: how related to value, 14; 
employed in agriculture sub- 
ject to the condition of Dimin- 
ishing Returns, 26-31; not so 
when employed in mechanical 
industries, 32-3; one of the 
four agents of production, 22, 
188; varying efficiency of 
labor, 35-46; division of, 47- 
54; relation of labor to value, 
67; to cost of production, 77-8, 
165. 

Laborer, the, as laying claim to 
a share of the product of 
industry, 163; the residual 
claimant upon the product of 
industry, Chap. XXIV. 

Laborers, their mistaken notions 
regarding Profits, 195; their 
efforts to improve their own 
condition, Chap. XXV. 

Laborers, agricultural, have no 
right to any part of Rent, 179. 

Land, one of the four agents of 
production, 22, 79, 188, Chap. 
IV; land a fixed quantity, 24; 
liable to grave abuse, 187; its 
capability of increased produc- 
tion, Chap. V; remuneration 
for the use of land (see Rent); 
the Tenure of Land, Chap. 
XIX (see, also. Nationaliz;^- 
tion of the Land). 



INDEX, 



319 



landlord, the, as laying claim to 
a share of the product of indus- 
try, 163; Chaps. XVIII and 
XIX. 

Latin union, so called, its mone- 
tary league, 109. 

Laws, regulating the contract for 
labor, 75, 249, 251-2. 

Legal Tender, 133. 

Lincoln, President, quoted, 203. 

Loans (see Interest and Usury 
Laws), Interest, in the econom- 
ic sense, is received by capi- 
tal, whether actually loaned or 
not, 212; interest on extra-haz- 
ardous loans, 222. 

Loss, which no man gains, 238, 
263. 

Losses, undeserved, work great 
injury to industry, 104, 144. 

Locock, Mr., quoted, 40. 

"Log-rolling" in legislation, 155. 

Lombard Street Banks, 111. 

London Banks, 111; London the 
centre of exchange-operations 
for the world, 127. 

Luxurious consumption: its 
economic character, 278. 

Luxury, ideas of: their influence 
in retarding the increase of 
population, 270-2. 

Machinery: great differences 
among different peoples in 
the capacity for using it, 42, 
149; its introduction renders 
necessary the employer, 54; 
tends to set producers and con- 
sumers apart, 280. 

Mahon, Lord, quoted, 35. 

Maine, Sir H. S.: use of "living 
money," 96. 

Mai thus, T. R. : the law of popu- 
lation, 269. 

Manufactures: not subject to the 
condition of diminishing re- 
turns, 32-3; how far affected 
by soil, climate, etc., 148-50. 

Margin of Production: as to land, 
168; as to Business Ability,195. 



Market value, its relations to nor. 
mal value, 68, 

Marriage: discouraged by eco- 
nomic desires, 270-2. 

Marshall, Alfred, and Mary 
Paley, the "Economics of In- 
dustry," preface, page vi. 

Martineau, Harriet: Female 
chastity in England, how af- 
fected by the degradation of 
labor, 237. 

Massachusetts, its colonial paper 
money, 138. 

Mastership in production, 54 (see 
chap, on Profits; also, chap, 
on Co-operation). 

Materials, the third form of capi- 
tal, 61; waste of, an important 
element in production, 42, 191, 
200, 231; materials m. pro- 
ducts, in tariff legislation, 155; 
value of, as affecting the suc- 
cess of co-operative enter- 
prises, 199, 204. 

Measure of Value, so called (see 
Denominator of Values). 

Mechanical industry, not subject 
to the condition of diminish- 
ing returns, 32-3. 

Medium of exchange, money 
serves as the. Chapter XI, 
how about paper money? 133. 

Metals, as money, 98. 

Metals, the Precious, as money, 
99; the irregularity of theii 
production, 105, 107 (see, also, 
Bi-Metallism and Tabular 
Standard). 

Middlemen in Ireland, 244. 

Mill, John Stuart, his Political 
Economy. Preface, page vi; 
distinction between fixed and 
circulating capital, 63. 

Mining industry, nature fixes the 
limits within which they may 
be pursued, 148. 

Mobility of capital and labor 
(see Emigration, etc.). 

Money, defined, 92; discussed, iu 
its various forms, Chapters XI- 



820 



INDEX. 



Money — Continued. 
XV; banking economizes the 
use of money, 118; interest 
paid, in general, not for the 
use of money, but of other 
forms of capital, 214; to in- 
crease the amount of money is 
not to lower the rate of inter- 
est, 227 (see, also, Bank Money, 
Inconvertible Paper Money, 
Political Money, Bi-Metallism). 

Monometallism (see Bi-Metal- 
lism). 

Monopoly: land a monopoly, 24; 
not so, capital, 225-6. 

Moral elements of supply and 
demand, 233. 

Mosaical code prohibits usury, 
214. 

Multiple standard for Deferred 
Payments (see Tabular Stand- 
ard). 

National Banks of the United 
States, 128. 

Nationalization of the land, 182-7. 

Neighborhood Industries, 151. 

Neison, Doctor, varying mortality 
of the several trades and pro- 
fessions, 232. 

New countries, 40, 235 ; their 
characteristic industries, 150. 

New England, its paper money, 

-lOQ 

No-Profits Employers, 190, 230. 

No-Rent Lands, 167, 173, 175. 

Nominal versus real cost of labor, 
261-5. 

Normal value : its relation to 
market value, 68, 260; deter- 
mined by cost of production at 
the greatest disadvantage, 81, 
160. 

Occupation, change of, as a means 
of relieving the labor market, 
235-6. 

Occupations of the people, how 
affected by soil, climate, etc., 
148-50; wages in different occu- 
pations, 23l, 



Opinion, public : influence on 

wages, 233. 
Organization of industry, Chap. 

VII; affecting price, 72. 
Over-Production: how far it is 

possible, 280. 
Over-population: industrial and 

social effects of, 239, 245, 269. 

Pakenham, Mr., quoted, 40. 

Paper money (see Bank money 
and Inconvertiblepaper money). 

Par of exchange, 125. 

Particular Wages, 232. 

Pauperism, 237. 

Pauper Lat)or argument for Pro 
tection, 156, Chap. XXVI. 

Place value, 19. 

Plant, so called, its existence as 
affecting price, 73. 

Political economy, the Science of 
Wealth, 1. 

Political money, Chap. XV (see 
Inconvertible Paper Money). 

Politics and economics, 235-6. 

Population: effect of the increase 
of population in driving culti- 
vation down to inferior soils, 
169 (see Subsistence); effects of 
over population, 269. 

Possessions, double coincidence 
of wants and, 87. 

Precious Metals (see Metals, Pre- 
cious). 

Premium on Gold, its cause and 
effects, 142-4. 

Price, its relation to value, 95; 
price, the agent in the inter- 
national distribution of money, 
140 ; price, as affecting distri- 
bution, 160 ; relation of rent to 
the price of agricultural prod- 
uce, 175; relation of profits to the 
price of manufactured goods, 
194; the price to be paid for the 
use of capital, 215, 218, 221. 
Price current, need of, 89, 91. 
Procreative Force, the: capabili- 
tiesof, 269; antagonized by eco% 
nomic desires, 270-2. 



INDEX. 



321 



Produce, its price not affected by 
Rent or Profits, 175, 194. 

Product of Industry, divided into 
shares, 163, 165, 188-92, 228. 

Production of wealth, defined, 16; 
modes of production, 17-20; 
agents of production, 22; rela- 
tion of cost of production to 
value. Chap. IX; production 
at the greatest disadvantage. 
Chap. X, 161, 188, 215-8. 

Producers and consumers, mis- 
understandings between them, 
280. 

Productive co-operation (see Co- 
operation). 

Production, cost of, of what made 
up, 165, 188. 

Productiveness, of Labor, the 
Source of Wages, 230; how 
that productiveness may be in- 
creased, 231 {see also Chapters 
VI and VII). 

Profit-Sharing, 205. 

Profits, the employer's share of 
the product of industry. Chap. 
XX; how profits are gained, 
189-191; the Law of, 192; prof- 
its and rent are species of the 
same genus, 194-5; profits do 
not form a part of the price of 
manufactured products, 194; 
are not obtained from deduction 
from wages, 194; economic jus- 
tification, 196; in Co-operation, 
laborers aim to secure the em- 
ployer's profits, 198. 

Protection vei'sus free trade, 
Chap. XVI; protection tends 
to increase the proportion of in- 
competent employers, 242; the 
" pauper-labor " argument for 
protection, Chap. XXVI. 

" Protest " of commercial paper, 
122. 

Punctuality in payments, pro- 
moted by banking, 122. 

Real versus nominal cost of la- 
bor, 261-3. 



Redeemability of paper money, 
what it implies, 114-5, 118, 
129, 141. 

Reflux, the (Bank Money), 129, 
141. 

Rent, a share in the distribution 
of the product of industry, 163 ; 
the law of rent, its source and 
its measure, 166-70, 174; to be 
distinguished from the return 
to capital invested in improve 
ments of land, 171-2; No-Renl 
lands, 173; rent does not form 
a part of the price of agricul- 
tural produce, 175; is not ob 
tained by deduction from wages. 
176; does rent belong in equity 
to the community? 177-83 (see, 
also, Nationalization of the 
Land); analogy between Rent 
and Profits, 194; contrasts be- 
tween Rent and Interest, 225-6, 
rents, how affected by imperfect 
competition, 243-5. 

Reproduction, of wealth, cost of, 
67. 

Reserve, specie, of bank money, 
114-5, 141. 

Residual Share of the Product of 
Industry = Wages, 228. 

Retail trade, the friction of, 75-6, 

Revolutionary paper money, U. S. 
and France, 137. 

Russia, the efficiency of its labor- 
ing population contrasted with 
that of England, 262; its Gov- 
ernment Securities, 221. 

Safe deposit, as a banking func 

tion. 111. 
Sanitary conditions, as affecting 

the efficiency of labor, 41 
Saving (see Abstinence). 
Savings Banks, 250. 
Science, distinction between po 

litical economy as a science and 

as an art, preface, page v. 
Scotch, once an idle people, 45, 
Scotland, inadequate shelter of 

the laboring population, 41, 



322 



INDEX. 



Bentiments, personal, excluded 
from detinition of value,, 3-4; 
sentiment as modifying the in- 
fluence of competition, 233, 244. 

Services of the possessors of 
health, skill and intelligence 
may be the subjects of ex- 
change, though those qualities 
cannot be, 6, 7. 

Shelter, its relation to subsistence, 
41, 62, 269. 

Sheep as Money, 96. 

Silver (see Precious Metals; see, 
also, for its relation to gold, Bi- 
Metallism). 

Skill is not wealth, though it 
may become the means of 
acquiring wealth, 6-8. 

Slave labor, the cause of its in- 
efBciency, 44. 

Smith, Adam: his Wealth of 
Nations, effect upon the rela- 
tions of States, 11; unprofit- 
ableness of slave labor, 43; 
division of labor, 48. 

Socialist writers, their disparag- 
ing view of the employer's 
function, 197. 

Soil, the, a fund for the endow- 
ment of the human race, 24-5; 
influence upon the distribution 
of industries, 148; subject to 
abuse, 25, 187. 

Soldiers, their services economic 
in England, non-economic in 
Germany, 4. 

Speculation, aggravated by bad 
money, 144-6. 

Specie Reserve of Banks, 114-5. 

Standard of Deferred Payments, 
usually called standard of 
value. 103-5; how about paper 
money ? 134-42; how about bi- 
metallic money ? 107-9 (see, 
also. Tabular Standard). 

State, the, its obligation to con- 
trol the issue of bank money, 
115; its right to Rent, 181; its 
intervention in the contract for 
labor, 76, 349, 251-2. 



Stock, influence of a stock of a 
commodity upon its price, 70. 

Storage, necessity of, as affecting 
price, 74. 

Strength is "not wealth, 6-8. 

Strikes, 247; justification of, 
256-7; co-operation would 
abolish strikes, 200. 

Subsistence, one form of capital, 
61; its relation to wages, 232, 
238; its relation to population, 
269. 

Substitution of one commodity 
for another in use, as affecting 
price, 71. 

Suffrage, political, its influence 
upon the distribution of 
wealth, 235-6, 250. 

Sumner, W. G., Prof., his Prob- 
lems of political economy; 
preface, page vi. 

Supply and demand, 15, 215, 
232; intellectual and moral 
elements of, 233. 

Supply, causes which affect, 
69-76; supply of money, 129, 
134-42. 

Surplus, the, above cost of pro- 
duction, of what made up, 
and how distributed. Chap. X, 
pars. 164-5, 188-192, 194, 228. 

Sympathy with labor (see 
Opinion, Public). 

Tabular Standard for Deferred 
Payments, 106. 

Tariff, Protective (see Pro tec- 
tion). 

Taxation (see Government Ex- 
penditure). 

Tenure of the Soil, Chap. XIX. 

Tender, Legal (see Legal Ten- 
der). 

Territorial division of labor, 
147-51, 

Three Cornered Exchange, 127. 

Time value, 18. 

Tobacco, as money, 93. 

Tools, the second form of capital, 
61. 



INDEX. 



323 



Trades unions, their formation 
in England, 247; their eco- 
nomic influence, 253-4. 
Transferability, essential to 

value, 6. . 

Transportation, its relation to 
value, 19; to prices, 140; to 
rent, 170; as affecting the dis- 
tribution of industries, 151. 
Truck, 242. 

Turkey, its government securi- 
ties, 221. 
Unearned increment of land (see 

Increment, etc.). 
United States: the laboring pop- 
ulation well fed, 37,40; capable 
of using delicate and intricate 
machinery, 42, 149; Banks and 
Bank money, 112-(5, 128-9; its 
government paper money, 137, 
143 (see, also. Greenbacks); 
agriculture, 148, 171-2; co- 
operative enterprises, 202, 209; 
competition in the U. S. before 
the War of Secession, 235; 
trades unions, 255. 
Usury and usury laws, 213-4, 

219-20. 
Utility, how related to value; 
useful, in economics, does not 
mean beneficial, 12. 

Value: related to wealth as attri- 
bute to substance, 2, 21; de- 
fined, 3; relation to utility, 
12-13; to labor, 14; is governed 
by the relation of demand and 
supply, 15; ho^ cost of pro- 
duction stands related to value; 
Chap. IX; value of money, 
Chap. XV. 



Virginia, the Colony of, tobacco 
as money, 93. 

Wage fund theory, 231. 

Wages: a share in the product of 
industry, 163; are not dimin^ 
ished by the sums received by 
the landlord class as rent, 176; 
or by the sums received by the 
employing class as profits, 194; 
wages constitute the residual 
share of the product, Chap. 
XXIII; effect upon wages of 
Imperfect Competition, 236- 
242; what may be done to 
remedy the evil, Chaps. XXV- 

Wants and Possessions, double 
coincidence required in Barter, 

War, paper money in, 137. 

Waste of materials (avoidable), 
an important element in pro- 
duction, 42, 191, 200, 231. 

Waste of soil, 25, 187. 

Water privileges, rent of, 159, 

163. 
Water powers, effect upon the 

growth of manufactures, 148. 
Wealth: the subject-matter of 

political economy, 1; relation 

to value, 2, 21 (see, also, 

throughout. Capital) 
Webster, Daniel, quoted, 19, 

'' Wildcat " Banking, 115. 
Women: the causes which deter 
mine their wages, 233. 

Young, Arthur: ownership awa- 
kens industry. 45. 



AMERICAN SCIENCE SERIES 



^11 tyrices are net unless marlied retail. Detail of the ^ooTiswUlbe 
found i2 Henry Holt & Co.'s Educational Catalogue, free on application. 

Physics. By Prof. George F. Barker, University of Pennsylvania 

Advanced Course. 903 pp. 8vo. , ^^-^ 

^'Tffi^t..^ s<5ivss.r''4p'?%^^'''"^ ""'^"^'*" 1-80 

glSS?.'''°iH^VSitf^«i«o„ 1901.) «5pp. 12mo. yO 

rhemical Experiments. By Prof. Remsen and Dr. W. W. Ran- 
^I^T {ForSnefer Coxcrie.) J^o blank pages for notes. 158 pp. 

Astronomy. By Prof. Simon Newcomb of Johns Hopkins and Edward 
S HOL^EN, late Director of the Lick Observatory, California. 
Advanced Course. 512 pp. 8vo ^-^2 

Thpsame Brief er Course. 353 pp. 13mo. ^ Ton 

ThISSI: Elenientary Course. By E. S. Holden, 446 pp. 13mo. 1.20 
Geoloe-v. Bv Profs. Thomas C. Chamberlain and Rollin D. Salis- 
bury University of Chicago. {In preparation.) 
rptipral Biolos-V. By Prof. W. T. Sedgwick, Mass. Institute of Tech- 
^ nology a?d Prof. E. B. Wilson, Columbia Univ. Revised and 

Enlarged. 231pp. 8vo. 
Botany. By Prof. C. E Bessey, Univ. of Nebraska. ^ ^ 

Advanced Course. 611pp. »vo. ,.,2 

The same. Briefer Course. 356 pp. ^'^ 

Zoology. By Prof. A. S. Packard, Jr., Brown University. 

Advanced Course. 723 pp. 8vo J-^^ 

The same. Briefer Course. 338 pp. ^ 

The same. Elementary Course. 290 pp. 12mo. »"c. 

The Human Body. By H. Newell Martin, sometime professor m the 
//.Se?&S?i?e.^S^pT'8vo. (Copies without chapter on Repro- 

^^^^'^^l^r^^tr^^S^Sfiu.ediUon, raised ,y Frof.O 
Wells Fitz of Harvard.) mp^. V2mo. ^-^ 

The same. Elementary Course. 2Q1 pp. 12mo 'i>c 

The Human Body and the Effects of Narcotics. 261 pp. l^mo. i.^u 

Psvcholoffy. By Prof. William James of Harvard. 

^^^AdtSedcIurse. 689 + 704 pp 8vo. 2 vols. |-80 

The same. Brief er Course. 478 pp. 12mo. _ -i-"" 

Ethics. By Profs. John Dewey and James H. Tufts, Chicago Uni- 
versity. {In preparation.) 

Political Economy. By the late President Francis A. Walker, Mass. 

Institute of Technology. g qq 

Advanced Course. 537 pp. 8vo. -.'oo 

The same. Brie/e?' Course. 415 pp. 12nio. ^-^ 

The same. Elementary Course. 423pp. 12mo. ^,,. ^. ^ 

Finance. By Prof. Henry Carter Adams, University of Michigan^ 
Advanced Course. 573 pp. 8vo. 

TTT-xTr>\/ urMT ^r rri 29 West 23d street, New York 
HENRY HOLl ex CU. srsWaMsh Avenue, CMcago 

viii 'o2 



FEB 5 1904 



LIBRARY OF CONGRESS 




0013721 1130 



Jl: 













'^iKsvvmimKVi' 



